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Capital tax competition and returns to scale

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  • Burbidge, John
  • Cuff, Katherine

Abstract

There is a gap between the predictions of capital tax competition models and the reality they purport to describe. In a standard capital-tax model, with head taxes, capital-importing regions tax capital and capital-exporting regions subsidize capital. In the real-world, competing regions appear to subsidize capital whether or not they are capital importers. We show that by relaxing the standard assumption of constant returns to scale symmetric regions in a Nash equilibrium may all subsidize capital.We also prove that any ine¢ciencies in a non-symmetric Nash equilibria arise entirely from regions’ incentives to manipulate the terms of trade, and not from increasing returns.We also compare our results to those in captial tax competition models without head taxes.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 35 (2005)
Issue (Month): 4 (July)
Pages: 353-373

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Handle: RePEc:eee:regeco:v:35:y:2005:i:4:p:353-373

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  1. Scoones, David & Wen, Jean-Francois, 2001. " Common and Private Values of the Firm in Tax Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 3(4), pages 373-89.
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  6. Ben Lockwood, 2004. "Competition in Unit vs. Ad Valorem Taxes," International Tax and Public Finance, Springer, vol. 11(6), pages 763-772, November.
  7. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9780521171960.
  8. John Burbidge & Katherine Cuff, 2002. "Capital Tax Competition and Returns to Scale," Department of Economics Working Papers 2002-10, McMaster University.
  9. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
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  13. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
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  15. Eckhard Janeba & Michael Smart, 2001. "Is Targeted Tax Competition Less Harmful than its Remedies?," CESifo Working Paper Series 590, CESifo Group Munich.
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Citations

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Cited by:
  1. Till Gross, 2013. "Capital Tax Competition and Dynamic Optimal Taxation," Carleton Economic Papers 13-08, Carleton University, Department of Economics.
  2. Fernandez, Gonzalo E., 2005. "A note on tax competition in the presence of agglomeration economies," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 837-847, November.
  3. Matthias Wrede, 2014. "Asymmetric tax competition with formula apportionment," Letters in Spatial and Resource Sciences, Springer, vol. 7(1), pages 47-60, March.
  4. Alexei Alexandrov & Özlem Bedre-Defolie, 2011. "Sales tax competition and a multinational with a decreasing marginal cost," ESMT Research Working Papers ESMT-11-01, ESMT European School of Management and Technology.
  5. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2007. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economics Working Papers 1062, Department of Economics and Business, Universitat Pompeu Fabra.
  6. John Burbidge & Katherine Cuff, 2002. "Capital Tax Competition and Returns to Scale," Working Papers 03002, University of Waterloo, Department of Economics, revised Sep 2003.
  7. Marius Brülhart & Sam Bucovetsky & Kurt Schmidheiny, 2014. "Taxes in Cities," CESifo Working Paper Series 4951, CESifo Group Munich.
  8. John Burbidge & Katherine Cuff & John Leach, 2004. "Capital Tax Competition with Heterogeneous Firms and Agglomeration Effects (new title: Tax competition with heterogeneous firms)," CESifo Working Paper Series 1277, CESifo Group Munich.
  9. Han, Yutao & Pieretti, Patrice & Zou, Benteng, 2014. "Does size asymmetry exacerbate the inefficiency of tax competition?," Economics Letters, Elsevier, vol. 122(1), pages 16-18.
  10. Matthias Wrede, 2009. "Agglomeration, tax competition, and fiscal equalization," Working Papers 2009/5, Institut d'Economia de Barcelona (IEB).
  11. Luca Barone, 2013. "An ABM for Economics: Micro Explains Macro," Working papers 016, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
  12. Yutao Han, 2013. "Who benefits from partial tax coordination?," CREA Discussion Paper Series 13-24, Center for Research in Economic Analysis, University of Luxembourg.
  13. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
  14. Jofre-Monseny, Jordi & Solé-Ollé, Albert, 2012. "Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of employment location to local taxes," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 257-268.
  15. Jordi Jofre-Monseny, 2010. "Is agglomeration taxable?," Working Papers 2010/15, Institut d'Economia de Barcelona (IEB).

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