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Lumpy World and Race to the Bottom

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  • Candau Fabien
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    Abstract

    This paper presents a model of the New Economic Geography which integrates commuting costs and land rent and displays a dispersion - agglomeration configuration when regional and/or international trade are liberalised. Two main results are found, the first one is that dispersion Pareto dominates agglomeration, the second one is that the agglomeration rent is not bell-shaped but strictly decreasing when impediments to trade are removed. This turns out to be a convenient framework to revisit the links between tax competition, location of firms and trade integration. It is shown in particular that trade liberalization only leads to a race to the bottom in terms of taxation, and that a tax floor set at the level of the small country may be detrimental to it.

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    File URL: http://128.118.178.162/eps/it/papers/0508/0508008.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series International Trade with number 0508008.

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    Length: 24 pages
    Date of creation: 17 Aug 2005
    Date of revision: 01 Feb 2006
    Handle: RePEc:wpa:wuwpit:0508008

    Note: Type of Document - pdf; pages: 24
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    Web page: http://128.118.178.162

    Related research

    Keywords: Economic geography; Cities; Trade; Tax competition.;

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    References

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    1. Dani Rodrik, 1997. "Trade, Social Insurance, and the Limits to Globalization," NBER Working Papers 5905, National Bureau of Economic Research, Inc.
    2. Tabuchi, Takatoshi, 1998. "Urban Agglomeration and Dispersion: A Synthesis of Alonso and Krugman," Journal of Urban Economics, Elsevier, vol. 44(3), pages 333-351, November.
    3. Behrens, Kristian & Gaigné, Carl & Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 2003. "Inter-regional and International Trade: Seventy Years After Ohlin," CEPR Discussion Papers 4065, C.E.P.R. Discussion Papers.
    4. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
    5. Forslid, Rikard & Andersson, Fredrik, 1999. "Tax Competition and Economic Geography," Research Papers in Economics 2000:5, Stockholm University, Department of Economics.
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    9. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999. "Competing for Capital in a 'Lumpy' World," CEPR Discussion Papers 2188, C.E.P.R. Discussion Papers.
    10. BEHRENS, Kristian, 2004. "International integration and regional inequalities : how important is national infrastructure ?," CORE Discussion Papers 2004066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    13. Elisenda Paluzie Hernandez, 1999. "Trade policy and regional inequalities," Working Papers in Economics 48, Universitat de Barcelona. Espai de Recerca en Economia.
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    16. repec:hal:cesptp:halshs-00096285 is not listed on IDEAS
    17. Raul Livas Elizondo & Paul Krugman, 1992. "Trade Policy and the Third World Metropolis," NBER Working Papers 4238, National Bureau of Economic Research, Inc.
    18. Marius BRÜLHART & Matthieu CROZET & Pamina KOENIG, 2004. "Enlargement and the EU Periphery: The Impact of Changing Market Potential," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.02, Université de Lausanne, Faculté des HEC, DEEP.
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    Cited by:
    1. Candau, Fabien, 2006. "The Spatial and Public Economics of Regions, a Theoretical and Empirical Survey," MPRA Paper 1153, University Library of Munich, Germany.

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