Corporate Tax Systems and the Location of Industry
AbstractThis paper analyzes the effects of different corporate tax systems on the location of industry within an economic geography model with regional size asymmetries. Both the North and the South gain industry by adopting a tax regime that produces the lowest tax level. As the share of expenditures in the North increases, the Nash equilibrium has this region setting regressive taxes, while the South introduces progressive taxation. The unilateral welfare-maximizing tax structure in the North (South) is the regressive (progressive) system when expenditures in the North increase. Welfare in the North (South) is however maximized if both regions set regressive (progressive) taxes, while regressive (progressive) taxation in both regions represents a joint welfare maximizing outcome if the economic size of the North is higher (lower) than a certain threshold value. As trade is liberalized, the equilibrium tax regime adopted depends on how pro ts respond to lower trade costs. Proportional taxation is never an equilibrium, neither as regional spending changes, nor as trade is liberalized.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2010:6.
Length: 30 pages
Date of creation: 14 Apr 2010
Date of revision:
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
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More information through EDIRC
Economic Geography; Tax Systems; Corporate Taxation;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-04-24 (Accounting & Auditing)
- NEP-ALL-2010-04-24 (All new papers)
- NEP-GEO-2010-04-24 (Economic Geography)
- NEP-PBE-2010-04-24 (Public Economics)
- NEP-PUB-2010-04-24 (Public Finance)
- NEP-URE-2010-04-24 (Urban & Real Estate Economics)
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