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Fiscal competition and regional differentiation

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  • Justman, Moshe
  • Thisse, Jacques-Francois
  • van Ypersele, Tanguy

Abstract

Regions can benefit by offering infrastructure services that are differentiated. Competition between regions over potential investors is then less direct, allowing them to realize greater benefits from external investors. The two polar cases of full and incomplete information about investors' needs are studied. In both cases, there is regional differentiation. However, fiscal competition is efficient in the former case but not in the latter. Finally, it is shown that free entry in the location market calls for some regulation because of the excessive number of competing regions that would prevail in equilibrium.

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Bibliographic Info

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

Volume (Year): 35 (2005)
Issue (Month): 6 (November)
Pages: 848-861

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Handle: RePEc:eee:regeco:v:35:y:2005:i:6:p:848-861

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  1. Mansoorian, Arman & Myers, Gordon M., 1997. "On the consequences of government objectives for economies with mobile populations," Journal of Public Economics, Elsevier, vol. 63(2), pages 265-281, January.
  2. Taylor, Leon, 1992. "Infrastructural competition among jurisdictions," Journal of Public Economics, Elsevier, vol. 49(2), pages 241-259, November.
  3. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1027-56, November.
  4. Jan K. Brueckner, 1999. "Welfare Reform and the Race to the Bottom: Theory and Evidence," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 505-525, January.
  5. Justman, Moshe & Thisse, Jacques-François & van Ypersele, Tanguy, 2001. "Taking the Bite Out of Fiscal Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3109, C.E.P.R. Discussion Papers.
  6. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  9. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
  10. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(4), pages 645-681, August.
  11. Martin, Philippe, 1999. "Public policies, regional inequalities and growth," Journal of Public Economics, Elsevier, vol. 73(1), pages 85-105, July.
  12. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 64, pages 416.
  13. Anderson, S. P. & Neven, D. J., 1989. "Market efficiency with combinable products," European Economic Review, Elsevier, vol. 33(4), pages 707-719, April.
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Cited by:
  1. Calfat, Germán & Flôres, R.G. & Rivas, Ana & Granato, M., 2010. "Policy making in asymmetric regional integrations: a methodology for allocating cohesion fund resources," IOB Working Papers 2010.05, Universiteit Antwerpen, Institute of Development Policy and Management (IOB).
  2. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, Springer, vol. 8(2), pages 89-111, June.
  3. Egger, Hartmut & Falkinger, Josef, 2006. "The role of public infrastructure and subsidies for firm location and international outsourcing," European Economic Review, Elsevier, vol. 50(8), pages 1993-2015, November.
  4. Ben Zissimos & Myrna Wooders, 2003. "Public Good Differentiation and the Intensity of Tax Competition," Vanderbilt University Department of Economics Working Papers 0710, Vanderbilt University Department of Economics.
  5. Ben Zissimos & Myrna H. Wooders, 2006. "Relaxing Tax Competition through Public Good Differentiation," Vanderbilt University Department of Economics Working Papers 0601, Vanderbilt University Department of Economics.
  6. Myrna Wooders & Ben Zissimos, 2003. "Hotelling Tax Competition," CESifo Working Paper Series 932, CESifo Group Munich.
  7. Dembour, Carole & Wauthy, Xavier, 2009. "Investment in public infrastructure with spillovers and tax competition between contiguous regions," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(6), pages 679-687, November.
  8. Marcel Gérard & Natacha Gilson & Fernando Ruiz, 2012. "Higher education and firms: on the interaction between research and regional policies," International Tax and Public Finance, Springer, Springer, vol. 19(3), pages 338-367, June.
  9. Justman, Moshe & Thisse, Jacques-François & van Ypersele, Tanguy, 2001. "Taking the Bite Out of Fiscal Competition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3109, C.E.P.R. Discussion Papers.
  10. Marcel Gérard & Fernando Ruiz, 2006. "Interjurisdictional Competition for Higher Education and Firms," CESifo Working Paper Series 1719, CESifo Group Munich.
  11. Kai Konrad, 2008. "Mobile tax base as a global common," International Tax and Public Finance, Springer, Springer, vol. 15(4), pages 395-414, August.
  12. Hubert Jayet & Sonia Paty, 2006. "Capital indivisibility and tax competition: are there too many business areas when some of them are empty?," Working Papers 18757, Institut National de la Recherche Agronomique, France.
  13. Cohen-Zada, Danny & Justman, Moshe, 2012. "Affinity and tension between religious denominations: Evidence from private school enrolment," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 42(6), pages 950-960.
  14. Marie-Laure Breuillé & Thierry Madiès & Emmanuelle Taugourdeau, 2007. "Fiscal federalism and soft budget constraint: does the nature of public spending matter?," EconomiX Working Papers 2007-16, University of Paris West - Nanterre la Défense, EconomiX.
  15. Patrice Pieretti & Skerdilajda Zanaj & Benteng Zou, 2012. "On the long run economic performance of small economies," CREA Discussion Paper Series 12-14, Center for Research in Economic Analysis, University of Luxembourg.

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