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Capital indivisibility and tax competition: Are there too many business areas when some of them are empty?

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  • Jayet, Hubert
  • Paty, Sonia

Abstract

In this paper, we propose a model where local jurisdictions must engage a development cost before competing for hosting a firm with uncertain preferences among possible sites. We first show that even an optimizing central planner managing all the jurisdictions develops more sites than there are plants to host. Doing so, he diversifies his supply and has a higher probability of hosting the firm. Then, we show that, if every jurisdiction is managed by a local government, there are more developed sites than with the central planner, which implies excess supply.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 60 (2006)
Issue (Month): 3 (November)
Pages: 399-417

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Handle: RePEc:eee:juecon:v:60:y:2006:i:3:p:399-417

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Web page: http://www.elsevier.com/locate/inca/622905

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References

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  1. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, Elsevier, vol. 19(3), pages 296-315, May.
  2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  3. MINTZ, Jack & TULKENS, Henry, . "Commodity tax competition between member states of a federation: equilibrium and efficiency," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -693, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. JUSTMAN, Moshe & THISSE, Jacques-François & VAN YPERSELE, Tanguy, . "Fiscal competition and regional differentiation," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1849, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, Elsevier, vol. 25(2), pages 193-212, March.
  6. Wildasin, David E., 1988. "Nash equilibria in models of fiscal competition," Journal of Public Economics, Elsevier, Elsevier, vol. 35(2), pages 229-240, March.
  7. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, American Economic Association, vol. 79(5), pages 1249-56, December.
  8. Taylor, Leon, 1992. "Infrastructural competition among jurisdictions," Journal of Public Economics, Elsevier, Elsevier, vol. 49(2), pages 241-259, November.
  9. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 820-26, September.
  10. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, Elsevier, vol. 19(3), pages 356-370, May.
  11. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 393-421, November.
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Cited by:
  1. Shun-ichiro Bessho & Kimiko Terai, 2008. "Competition for Private Capital and Central Grants: The Case of Japanese Industrial Parks," Working Papers, University of California-Irvine, Department of Economics 080909, University of California-Irvine, Department of Economics.
  2. Kai Konrad, 2008. "Mobile tax base as a global common," International Tax and Public Finance, Springer, Springer, vol. 15(4), pages 395-414, August.
  3. Janeba, Eckhard & Osterloh, Steffen, 2012. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 106(C), pages 89-100.
  5. Mutsumi Matsumoto, 2010. "Entry in tax competition: a note," International Tax and Public Finance, Springer, Springer, vol. 17(6), pages 627-639, December.

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