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Tax Competition and Economic Geography

  • Fredrik Andersson

    ()

    (Lund University)

  • Rikard Forslid

    ()

    (Stockholm University)

Tax competition between two countries is considered in a trade-and-location setting with differentiated products and monopolistic competition. There are two groups of workers, mobile ones and immobile ones. Taxes are used for producing a public good. It is shown that an equilibrium with mobile workers dispersed across countries is destabilized by increased taxes on these mobile workers-even for perfectly coordinated tax increases. It is also shown that while tax competition gives rise to standard distortions in a tax-competition game when mobile workers are dispersed, different distortions result when they are concentrated in one country. Copyright 2003 Blackwell Publishing Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 5 (2003)
Issue (Month): 2 (04)
Pages: 279-303

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Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:279-303
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