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Economic Geography and the Fiscal Effects of Regional Integration

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Author Info

  • Rodney D. Ludema

    (Georgetown University)

  • Ian Wooton

    (University of Glasgow)

Abstract

In models of economic geography, plant-level scale economies and trade costs create incentives for spatial agglomeration of production into a manufacturing core and agricultural periphery, creating regional income differentials. We examine tax competition between national governments to influence the location of manufacturing activity. Labour is imperfectly mobile and governments impose redistributive taxes. Regional integration is modeled as either increased labour mobility or lower trade costs. We show that either type of integration may result in a decrease in the intensity of tax competition, and thus higher equilibrium taxes. Moreover, economic integration must increase taxes when the forces of agglomeration are the strongest.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 9801001.

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Length: 38 pages
Date of creation: 20 Jan 1998
Date of revision:
Handle: RePEc:wpa:wuwpit:9801001

Note: Type of Document - MS Word; prepared on IBM PC ; to print on HP; pages: 38 ; figures: included. * Drafts of this paper have been presented at the European Science Foundation conference on Migration and Development, Mont Ste-Odile, May 1996; a Workshop on International Trade and Factor Movements between Distorted Economies held by the University of Konstanz, July 1996; the annual meeting of the American Economic Association, New Orleans, January 1997; the Midwest International Economics conference, May 1997; and workshops at EPRU, Copenhagen in July 1997 and the Tinbergen Institute, Rotterdam in November 1997. We are grateful to participants for their comments and suggestions.
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Related research

Keywords: economic integration; economic geography; factor mobility; international trade; tax competition;

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References

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  1. Rodney D. Ludema & Ian Wooton, 1997. "Regional Integration, Trade, and Migration: Are Demand Linkages Relevant in Europe?," Working Papers 9704, Business School - Economics, University of Glasgow, revised Jul 1997.
  2. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  3. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
  4. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Torsten Persson & Guido Tabellini, 1990. "The Politics of 1992: Fiscal Policy and European Integration," NBER Working Papers 3460, National Bureau of Economic Research, Inc.
  6. repec:fth:iniesr:430 is not listed on IDEAS
  7. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  8. Krugman, Paul & Venables, Anthony J., 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
  9. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June.
  10. Mansoorian, Arman & Myers, Gordon M., 1993. "Attachment to home and efficient purchases of population in a fiscal externality economy," Journal of Public Economics, Elsevier, vol. 52(1), pages 117-132, August.
  11. Wilson, John Douglas, 1987. "Trade, Capital Mobility, and Tax Competition," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 835-56, August.
  12. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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