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Intra-regional Tax Competition and Economic Geography

  • Ossip Hühnerbein
  • Tobias Seidel

Abstract In this paper, we extend a solvable version of the core-periphery agglomeration model to four countries located in two regions to show that governments in the agglomerated region may not be able to levy a tax premium on mobile capital if there is intra-regional tax competition. This hypothesis challenges standard results in the literature and delegates clarification to empirical research. With respect to welfare, we find that intra-regional tax competition is detrimental from a welfare perspective and that tax harmonisation unambiguously makes both countries in the core region better off. Copyright 2010 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 33 (2010)
Issue (Month): 8 (08)
Pages: 1042-1051

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Handle: RePEc:bla:worlde:v:33:y:2010:i:8:p:1042-1051
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  1. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  2. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
  3. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
  4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  5. Michael P. Devereux & Peter Birch Sørensen, 2006. "The Corporate Income Tax: international trends and options for fundamental reform," European Economy - Economic Papers 264, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. 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.
  7. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  8. Rainald Borck & Michael Pflüger, 2004. "Agglomeration and Tax Competition," Discussion Papers of DIW Berlin 408, DIW Berlin, German Institute for Economic Research.
  9. Peter Birch S�rensen, 2007. "Can Capital Income Taxes Survive? And Should They?," CESifo Economic Studies, CESifo, vol. 53(2), pages 172-228, June.
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