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Competing for Capital in a "Lumpy" World

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Author Info
Kind, H.J.
Knarvik, K.H.M.
Schjelderup, G.

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Abstract

This paper uses a new economic geography model to analyze tax competition between two countries trying to attract internationally mobile capital. Each government may levy a source tax on capital and a lump sum tax on fixed labor. If industry is concentrated in one of the countries, the analysis finds that the host country will gain from setting its source tax on capital above that of the other country. If particular, the host may increase its welfare per capita by setting a positive source tax on capital and capture the positive externality that arise in the agglomeration. If industry is not concentrated, however, both countries will subsidize capital.

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Publisher Info
Paper provided by Norwegian School of Economics and Business Administration- in its series Papers with number 7/99.

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Length: 26 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:norgee:7/99

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Postal: NORWEGIAN SCHOOL OF ECONOMICS AND BUSINESS ADMINISTRATION, HELLEVEIEN 30, 5035 BERGEN SANDVIKEN NORWAY.
Phone: 5595 9000
Fax: 5595 9100
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Web page: http://www.nhh.no/
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Related research
Keywords: CAPITAL ; TAXATION ; GEOGRAPHY ; COMPETITION;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H2 - Public Economics - - Taxation, Subsidies, and Revenue

References listed on IDEAS
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    Other versions:
  2. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November. [Downloadable!] (restricted)
  3. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
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    Other versions:
  5. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
    Other versions:
  6. Clemens Fuest & Bernd Huber, 1999. "Tax Coordination and Unemployment," International Tax and Public Finance, Springer, vol. 6(1), pages 7-26, February. [Downloadable!] (restricted)
    Other versions:
  7. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers 1822, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Michael Keen, 1993. "The welfare economics of tax co-ordination in the European Community : a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(2), pages 15-36, February.
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  16. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March. [Downloadable!] (restricted)
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    Other versions:
  19. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
    Other versions:
  20. Bjerksund, Petter & Schjelderup, Guttorm, 1998. "The political economy of capital controls and tax policy in a small open economy," European Journal of Political Economy, Elsevier, vol. 14(3), pages 543-559, August. [Downloadable!] (restricted)
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