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Fiscal Incentives and Industrial Agglomeration

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Author Info

  • Luisa Lambertini

    ()
    (Boston College)

  • Giovanni Peri

    (Universita Bocconi)

Abstract

In the transitional phase towards full economic integration, European countries have the possibility of re-shaping the continental geography of specialization. We use an Economic Geography model of industrial agglomeration to show how fiscal incentives can be critical in this phase. Differently from other work we concentrate on the role of indirect taxation, and sector specific state-aid, still important in the EU but little studied. While it is obvious that tax incentives could be used to attract some industries, it is not obvious that, in a general equilibrium analysis, such use of taxes is welfare improving. In the paper, we show that the optimal policy is to levy asymmetric taxes on the two sectors only during the phase of intermediate transport costs, when such a measure induces welfare improving agglomerations.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 580.

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Length: 26 pages
Date of creation: 01 Apr 2001
Date of revision:
Handle: RePEc:boc:bocoec:580

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Phone: 617-552-3670
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Web page: http://fmwww.bc.edu/EC/
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Related research

Keywords: economic geography; agglomeration; fiscal policy;

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  1. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers 7/99, Norwegian School of Economics and Business Administration-.
  2. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
  3. Mary Amiti, 1997. "Specialisation Patterns in Europe," CEP Discussion Papers dp0363, Centre for Economic Performance, LSE.
  4. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
  5. Fredrik Andersson & Rikard Forslid, 2000. "Tax Competition and Economic Geography," Econometric Society World Congress 2000 Contributed Papers 1356, Econometric Society.
  6. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  7. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868.
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