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Agglomeration and tax competition

  • Borck, Rainald
  • Pfluger, Michael

Tax competition for a mobile factor is different in "new economic geography settings" compared to standard tax competition models. The agglomeration rent which accrues to the mobile factor in the core region can be taxed. Moreover, a tax differential between the core and the periphery can be maintained. The present paper reexamines this issue in a setting which, in addition to the core-periphery equilibria, exhibits stable equilibria with partial agglomeration. We show that a tax differential may arise as an equilibrium of the tax game even when there is only partial agglomeration and the mobile factor does not derive an agglomeration rent.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 50 (2006)
Issue (Month): 3 (April)
Pages: 647-668

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Handle: RePEc:eee:eecrev:v:50:y:2006:i:3:p:647-668
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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  8. 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.
  9. Rainald Borck, 2003. "Tax Competition and the Choice of Tax Structure in a Majority Voting Model," Discussion Papers of DIW Berlin 335, DIW Berlin, German Institute for Economic Research.
  10. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Agglomeration and economic geography," CORE Discussion Papers RP 1725, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Bayindir-Upmann, Thorsten & Ziad, Abderrahmanne, 2005. "Existence of equilibria in a basic tax-competition model," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 1-22, January.
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