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Fiscal competition and regional differentiation

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  • JUSTMAN, Moshe
  • THISSE, Jacques-François
  • 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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Suggested Citation

  • JUSTMAN, Moshe & THISSE, Jacques-François & VAN YPERSELE, Tanguy, 2005. "Fiscal competition and regional differentiation," LIDAM Reprints CORE 1849, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1849
    DOI: 10.1016/j.regsciurbeco.2005.04.001
    Note: In : Regional Science & Urban Economics, 35, 848-861, 2005
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    Cited by:

    1. Zissimos, Ben & Wooders, Myrna, 2008. "Public good differentiation and the intensity of tax competition," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1105-1121, June.
    2. Jayet, Hubert & Paty, Sonia, 2006. "Capital indivisibility and tax competition: Are there too many business areas when some of them are empty?," Journal of Urban Economics, Elsevier, vol. 60(3), pages 399-417, November.
    3. Zissimos, Ben & Wooders, Myrna, 2005. "Relaxing Tax Competition through Public Good Differentation," The Warwick Economics Research Paper Series (TWERPS) 737, University of Warwick, Department of Economics.
    4. Kai Konrad, 2008. "Mobile tax base as a global common," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 395-414, August.
    5. Marcel Gérard & Fernando Ruiz, 2006. "Interjurisdictional Competition for Higher Education and Firms," CESifo Working Paper Series 1719, CESifo.
    6. Pieretti, Patrice & Pulina, Giuseppe, 2020. "Does eliminating international profit shifting increase tax revenue in high-tax countries?," Economic Modelling, Elsevier, vol. 93(C), pages 717-727.
    7. Skerdilajda Zanaj & Patrice Pieretti & Benteng Zou, 2021. "On the long run sustainability of small jurisdictions," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(1), pages 15-35, March.
    8. Thierry Madiès & Ornella Tarola & Emmanuelle Taugourdeau, 2022. "Tax haven, pollution haven or both?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1527-1560, December.
    9. Dembour, Carole & Wauthy, Xavier, 2009. "Investment in public infrastructure with spillovers and tax competition between contiguous regions," Regional Science and Urban Economics, Elsevier, vol. 39(6), pages 679-687, November.
    10. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
    11. Tjaša Bjedov & Thierry Madiès & Marie Claire Villeval, 2016. "Communication And Coordination In A Two-Stage Game," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1519-1540, July.
    12. Justman, Moshe & Thisse, Jacques-Francois & van Ypersele, Tanguy, 2002. "Taking the bite out of fiscal competition," Journal of Urban Economics, Elsevier, vol. 52(2), pages 294-315, September.
    13. Marie-Laure Breuillé & Thierry Madiès & Emmanuelle Taugourdeau, 2007. "Fiscal federalism and soft budget constraint: does the nature of public spending matter?," Working Papers hal-04139222, HAL.
    14. Giuseppe Pulina & Skerdilajda Zanaj, 2022. "Tax competition and phantom FDI," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(6), pages 1342-1363, December.
    15. 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.
    16. Myrna Wooders & Ben Zissimos, 2003. "Hotelling Tax Competition," CESifo Working Paper Series 932, CESifo.
    17. Cohen-Zada, Danny & Justman, Moshe, 2012. "Affinity and tension between religious denominations: Evidence from private school enrolment," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 950-960.
    18. Hikaru Ogawa, 2010. "Fiscal Competition among Regional Governments - Tax Competition, Expenditure Competition and Externalities -," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(1), pages 1-30, February.
    19. Huang, Wei Hong & Chen, Yang & Rudkin, Simon, 2014. "Dynamic Fiscal competition with public infrastructure investment: Austerity and attracting capital inflow," RIEI Working Papers 2014-03, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration, revised 02 Mar 2016.
    20. Bin Wu & Xuefei Xu & Zhenzhong Feng, 2018. "Investment Promotion, Fiscal Competition and Economic Growth Sustainability," Sustainability, MDPI, vol. 10(1), pages 1-12, January.
    21. 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;International Institute of Public Finance, vol. 19(3), pages 338-367, June.
    22. 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 (IOB).
    23. Yoichi Otsubo & Theoharry Grammatikos & Thorsten Lehnert, 2012. "Market Perceptions of US and European Policy Actions Around the Subprime Crisis," DEM Discussion Paper Series 12-14, Department of Economics at the University of Luxembourg.

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    More about this item

    JEL classification:

    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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