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Public Debt and Economic Geography

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  • Federico Trionfetti

    ()
    (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))

Abstract

This paper studies the consequences of debt policies on the spatial distribution of output in a two-country model. It departs from the usual set up of local public finance by relaxing the assumption of balanced budget. Further, to single out the pure effect of debt the paper eliminates effects coming from tax and expenditure policies by assuming them exogenous and identical between countries except for the timing of taxation. Expected taxation rather than current tax levels motivates migration. Starting from an initial spatial configuration, be it Core-Periphery or symmetric equilibrium, the analysis identifies the critical thresholds of divergence or convergence of debt ratios which break the initial configuration. The paper also shows that a high debt country or a fast debt reducing country is a weaker player in the tax competition game. Lastly, tax harmonisation does not necessarily reduce migration flows.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00793388.

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Date of creation: Sep 2012
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Handle: RePEc:hal:wpaper:halshs-00793388

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Related research

Keywords: New Economic Geography; Economic Integration; Taxation;

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  1. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2000. "Competing for Capital in a "Lumpy" World," CESifo Working Paper Series 252, CESifo Group Munich.
  2. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
  3. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  4. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2007. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economics Working Papers 1062, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  6. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  7. Trionfetti, Federico, 2001. "Public Procurement, Market Integration, and Income Inequalities," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 29-41, February.
  8. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  9. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
  10. Frédéric Robert-Nicoud, 2005. "The structure of simple 'New Economic Geography' models (or, On identical twins)," Journal of Economic Geography, Oxford University Press, vol. 5(2), pages 201-234, April.
  11. Marius BRÜLHART & Federico TRIONFETTI, 2000. "Public Expenditure and International Specialisation," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.23, Université de Lausanne, Faculté des HEC, DEEP.
  12. Ottaviano, Gianmarco Ireo Paolo, 1996. "Monopolistic Competition, Trade, and Endogenous Spatial Fluctuations," CEPR Discussion Papers 1327, C.E.P.R. Discussion Papers.
  13. Forslid, Rikard & Andersson, Fredrik, 1999. "Tax Competition and Economic Geography," Research Papers in Economics 2000:5, Stockholm University, Department of Economics.
  14. Shields, Gail M & Shields, Michael P, 1989. " The Emergence of Migration Theory and a Suggested New Direction," Journal of Economic Surveys, Wiley Blackwell, vol. 3(4), pages 277-304.
  15. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
  16. Wellisch, Dietmar & Richter, Wolfram F., 1995. "Internalizing intergenerational externalities by regionalization," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 685-704, December.
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