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Intra-regional Tax Competition and Economic Geography

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  • Ossip Hühnerbein
  • Tobias Seidel

Abstract

We extent a solvable version of the core-periphery agglomeration model to four countries located in two regions. The paper shows that there might still be a race to the bottom in capital income tax rates despite agglomeration rents earned by the mobile factor. We find that intra-regional tax competition is detrimental from a welfare perspective and that tax harmonisation unambiguously makes both countries in the core region better off.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-10/cesifo1_wp2113.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2113.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2113

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Related research

Keywords: tax competition; economic geography; race to the bottom;

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References

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  1. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 264, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Rainald Borck & Michael Pflüger, 2004. "Agglomeration and Tax Competition," Discussion Papers of DIW Berlin 408, DIW Berlin, German Institute for Economic Research.
  3. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  4. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999. "Competing for Capital in a 'Lumpy' World," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2188, C.E.P.R. Discussion Papers.
  5. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  6. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2102, C.E.P.R. Discussion Papers.
  7. Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1822, C.E.P.R. Discussion Papers.
  8. Peter Birch S�rensen, 2007. "Can Capital Income Taxes Survive? And Should They?," CESifo Economic Studies, CESifo, CESifo, vol. 53(2), pages 172-228, June.
  9. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
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Cited by:
  1. Kelemen, József, 2013. "Magyarország hét régiójának új gazdaságföldrajzi modellje - paraméterbecslés
    [The new economic-geography model of Hungarys seven regions - a parameter estimate]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1075-1089.

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