Taxation, infrastructure, and endogenous trade costs in New Economic Geography
AbstractThis paper presents a New Economic Geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions' sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core, the price-index is rather high since the distortionary effect of taxes dominates. 'Free riding' - or, in terms of regional policy, externally funded infrastructure investment - is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch-up process.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1068.
Date of creation: 09 Jul 2008
Date of revision:
New Economic Geography; Taxation; Endogenous Trade Costs; Infrastructure; Regional Policy;
Other versions of this item:
- Stefan Gruber & Luigi Marattin, 2010. "Taxation, infrastructure and endogenous trade costs in new economic geography," Papers in Regional Science, Wiley Blackwell, vol. 89(1), pages 203-222, 03.
- S. Gruber & L. Marattin, 2009. "Taxation, Infrastructure, and Endogenous Trade Costs in New Economic Geography," Working Papers 668, Dipartimento Scienze Economiche, Universita' di Bologna.
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- 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-ALL-2008-07-20 (All new papers)
- NEP-PBE-2008-07-20 (Public Economics)
- NEP-URE-2008-07-20 (Urban & Real Estate Economics)
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