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Competition for Foreign Capital under Asymmetric Revenue-Orientation

Author

Listed:
  • RUPAYAN PAL
  • AJAY SHARMA

Abstract

This paper develops a model of inter-regional competition for mobile capital considering that regions may have different revenue-orientations. It shows that, if regions are asymmetric in terms of revenue-orientation, the less revenue-orientated region obtains higher tax-revenue and higher social welfare in the equilibrium than the more revenue-oriented region. However, if regions are symmetric, the equilibrium tax-revenue and social welfare are higher in the case of greater revenue-orientation of regions. Moreover, regions spend on public-investment and end up with Pareto-inferior equilibrium outcome, regardless of whether regions are symmetric or asymmetric. It also analyses implications of public-investment spillover on equilibrium outcomes.

Suggested Citation

  • Rupayan Pal & Ajay Sharma, 2016. "Competition for Foreign Capital under Asymmetric Revenue-Orientation," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 51(1), pages 105-116.
    • Handle: RePEc:dse:indecr:0113
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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