Fiscal Competition, Convergence and Agglomeration

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Fiscal Competition, Convergence and Agglomeration

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Robert Fenge ()
Maximilian von Ehrlich ()
Matthias Wrede ()

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Abstract

This paper analyzes the impact of fiscal competition through infrastructure in a New Economic Geography framework. It is shown that regional competition leads to convergence if the trade costs are high but induces divergence if trade cost have fallen below a certain value. Moreover, fiscal competition yields an overprovision if the trade costs are sizable while it leads to underprovision if the regions are highly integrated. Finally, a trade-off between regional convergence and efficiency arises since the efficient distribution of regional infrastructure requires full agglomeration for sufficiently low trade costs.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2084.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2084

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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