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Productive Public Expenditure in a New Economic Geography Model

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  • Commendatore, Pasquale
  • Kubin, Ingrid
  • Petraglia, Carmelo

Abstract

We assess whether and how differences in productive public expenditure impacts on industrial location. Since productive public expenditure and taxation affect in opposite direction industrial location, it is not straightforward that following an increase in productive public expenditure in a region, that region will necessarily enjoy stronger agglomeration. As a major contribution to the literature, we consider jointly two effects arising from public policy: the demand effect and the productivity effect. The interplay of these two effects determines the final impact on the spatial distribution of firms. The result is influenced by the proportion in which tax payers of the two regions contribute to the financing of public expenditure.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5824.

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Date of creation: Apr 2007
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Handle: RePEc:pra:mprapa:5824

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Keywords: economic geography; public expenditure; footloose capital;

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References

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  1. Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, vol. 43(2), pages 281-302, February.
  2. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  3. Vincent Dupont & Philippe Martin, 2006. "Subsidies to poor regions and inequalities: some unpleasant arithmetic," Journal of Economic Geography, Oxford University Press, vol. 6(2), pages 223-240, April.
  4. Martin, Philippe, 1998. "Public Policies, Regional Inequalities and Growth," CEPR Discussion Papers 1841, C.E.P.R. Discussion Papers.
  5. Borck, Rainald & Pflüger, Michael P., 2004. "Agglomeration and Tax Competition," IZA Discussion Papers 1033, Institute for the Study of Labor (IZA).
  6. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
  7. Pasquale Commendatore & Martin Currie & Ingrid Kubin, 2005. "Footloose Entrepreneurs, Taxes and Subsidies," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0521, Economics, The University of Manchester.
  8. Philippe Martin & Gianmarco Ottaviano, 1996. "Growth and Agglomeration," Working Papers 1996-14, CEPII research center.
    • Martin, Philippe & Ottaviano, Gianmarco I P, 2001. "Growth and Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 947-68, November.
  9. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
  10. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
  11. 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.
  12. Brakman, Steven & Garretsen, Harry & Marrewijk, Charles van, 2002. "Locational competition and agglomeration: the role of government spending," Research Report 02C75, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  13. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  14. Commendatore, P. & Kubin, I., 2006. "Taxation on Agglomeration," CeNDEF Working Papers 06-08, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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Cited by:
  1. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
  2. Rhydian James & Peter Midmore & Dennis Thomas, 2012. "Public Sector Size and Peripherality," Spatial Economic Analysis, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(4), pages 447-460, December.

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