No Taxation without Infrastructure
AbstractThis paper presents a New Economic Geography model with distortionary taxation and endogenized transport costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure leads to more pronounced agglomeration patterns. 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 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 The Rimini Centre for Economic Analysis in its series Working Paper Series with number 11-07.
Date of creation: Jul 2007
Date of revision: Jul 2007
New Economic Geography; Taxation; Endogenous Transport Costs; Infrastructure;
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
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- 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-2007-09-09 (All new papers)
- NEP-PBE-2007-09-09 (Public Economics)
- NEP-URE-2007-09-09 (Urban & Real Estate Economics)
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