IDEAS home Printed from https://ideas.repec.org/a/eee/eecrev/v48y2004i1p1-23.html
   My bibliography  Save this article

Agglomeration, integration and tax harmonisation

Author

Listed:
  • Baldwin, Richard E.
  • Krugman, Paul

Abstract

This paper considers tax competition and tax harmonization in the presence of agglomeration forces and falling trade costs. With agglomerative forces operating, industry is not indifferent to location in equilibrium, so perfectly mobile capital becomes a quasi-fixed factor. This suggests that the tax game is something subtler than a race to the bottom. Advanced 'core' nations may act like limit-pricing monopolists toward less advanced 'periphery' countries. Consequently, integration need not lead to falling tax rates, and might well be consistent with the maintenance of large welfare states. "Limit taxing" also means that that simple tax harmonization - adoption of a common tax rate - always harms at least one nation and adoption of a rate between the two unharmonised rates harms both nations. A tax floor set at the lowest equilibrium tax rate leads to a weak Pareto improvement.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    • Handle: RePEc:eee:eecrev:v:48:y:2004:i:1:p:1-23
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0014-2921(02)00318-5
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    2. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, April.
    3. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
    4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 857-880.
    5. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
    6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, April.
    7. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
    8. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
    9. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    10. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, April.
    11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    12. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    13. George R. Zodrow & Peter Mieszkowski, 2019. "Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods," World Scientific Book Chapters, in: George R Zodrow (ed.), TAXATION IN THEORY AND PRACTICE Selected Essays of George R. Zodrow, chapter 17, pages 525-542, World Scientific Publishing Co. Pte. Ltd..
    14. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-359, May.
    15. repec:hhs:iuiwop:430 is not listed on IDEAS
    16. Kind, H.J. & Midelfart Knarvik, K.H. & Schjelderup, G., 1998. "Industrial Agglomeration and Capital Taxation," Papers 7/98, Norwegian School of Economics and Business Administration-.
    17. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
    18. Janeba, Eckhard, 1998. "Tax competition in imperfectly competitive markets," Journal of International Economics, Elsevier, vol. 44(1), pages 135-153, February.
    19. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition [‘Do domestic firms benefit from direct foreign investment? Evidence from Venezuela’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 17(35), pages 449-495.
    20. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
    21. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, vol. 50(3), pages 647-668, April.
    2. Ottaviano, Gianmarco & Thisse, Jacques-Francois, 2004. "Agglomeration and economic geography," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 58, pages 2563-2608, Elsevier.
    3. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, April.
    4. Fabien Candau, 2008. "Entrepreneurs' Location Choice And Public Policies: A Survey Of The New Economic Geography," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 909-952, December.
    5. Andreas Haufler & Michael Pflüger, 2004. "International Commodity Taxation under Monopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 445-470, August.
    6. Gallo, Fredrik, 2010. "Resisting economic integration when industry location is uncertain," European Economic Review, Elsevier, vol. 54(3), pages 467-482, April.
    7. Thierry Madiès & Sonia Paty & Yvon Rocaboy, 2005. "Externalités fiscales horizontales et verticales. Où en est la théorie du fédéralisme financier ?," Revue d'économie politique, Dalloz, vol. 115(1), pages 17-63.
    8. Kurt A. Hafner, 2015. "Tax Competition and Economic Integration," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 45-61, February.
    9. Kurt A. Hafner, 2011. "Trade Liberalization and Technology Diffusion," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 963-978, November.
    10. Kristian Behrens & Frédéric Robert‐Nicoud, 2009. "Krugman's Papers in Regional Science: The 100 dollar bill on the sidewalk is gone and the 2008 Nobel Prize well‐deserved," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 467-489, June.
    11. Luca, Spinesi, 2005. "Vertical and Horizontal Innovation : Effects of Globalization and Migration on Inequality, Growth and Human Capital Accumulation," Discussion Papers (ECON - Département des Sciences Economiques) 2005028, Université catholique de Louvain, Département des Sciences Economiques.
    12. Karen Crabbé & Karolien De Bruyne, 2013. "Taxes, Agglomeration Rents and Location Decisions of Firms," De Economist, Springer, vol. 161(4), pages 421-446, December.
    13. Toulemonde, Eric, 2006. "Acquisition of skills, labor subsidies, and agglomeration of firms," Journal of Urban Economics, Elsevier, vol. 59(3), pages 420-439, May.
    14. Fabien Candau, 2013. "Trade, FDI and Migration," International Economic Journal, Taylor & Francis Journals, vol. 27(3), pages 441-461, September.
    15. Vincent Delbecque, 2008. "Tax Competition and Foreign Direct Investment: assessing the role of market potential and trade costs in a "Footloose Capital" framework," EconomiX Working Papers 2008-18, University of Paris Nanterre, EconomiX.
    16. Robert Fenge & Maximilian von Ehrlich & Matthias Wrede, 2007. "Fiscal Competition, Convergence and Agglomeration," CESifo Working Paper Series 2084, CESifo.
    17. Candau, Fabien, 2006. "The Spatial and Public Economics of Regions, a Theoretical and Empirical Survey," MPRA Paper 1153, University Library of Munich, Germany.
    18. Michael Pflüger, 2003. "A Simple, Analytically Solvable, Chamberlinian Agglomeration Model," Discussion Papers of DIW Berlin 339, DIW Berlin, German Institute for Economic Research.
    19. Karolina Ekholm & Katariina Hakkala, 2007. "Location of R&D and High-Tech Production by Vertically Integrated Multinationals," Economic Journal, Royal Economic Society, vol. 117(518), pages 512-543, March.
    20. Sato, Yasuhiro & Thisse, Jacques-Francois, 2007. "Competing for capital when labor is heterogeneous," European Economic Review, Elsevier, vol. 51(8), pages 2054-2079, November.

    More about this item

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:48:y:2004:i:1:p:1-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eer .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.