Double Bertrand tax competition: a fiscal game with governments acting as middlemen
AbstractIn a common market with costless mobility of all factors, regional governments can attract mobile firms by granting subsidies which must be financed out of wage taxes on mobile labour. Since firms locate where subsidies are highest and workers settle where taxes are lowest, government are forced "in the splits" (double Bertrand-type tax competition). We assume that without government intervention there is unemployment in the economy. Then regional governments behave like middlemen in the (distorted) labour market and the fiscal game takes the form of competition among strategic intermediaries. Results from the theory of intermediation are applied to this framework, enabling us to explain why government size may increase rather than decline under the the pressures of ongoing economic integration, how industrial clustering may emerge from tax competition, or how unemployment can be turned into job vacancies. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 99-52.
Date of creation: 1999
Date of revision:
Tax Competition; Fiscal Games; Subsidy Wars;
Other versions of this item:
- Wagener, Andreas, 2001. "Double Bertrand tax competition: a fiscal game with governments acting as middlemen," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 273-297, April.
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
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