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Tax effects in a two†region model of monopolistic competition

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  • Takatsuka, Hajime

Abstract

I examine how unit tax and ad valorem tax affect firm location in a monopolistic†competition model with asymmetrically sized regions and a quasi†linear preference. Tax revenue is evenly distributed to all workers or evenly distributed to the workers residing in the region generating the tax revenue. When a homogeneous good is traded, despite reimbursement systems, the ad valorem tax retains the firm share, while the unit tax accelerates firm agglomeration in the larger region. When the homogeneous good is nontradable, despite taxation schemes, the intraregional distribution retains the firm share, while the interregional one accelerates agglomeration in the larger region.

Suggested Citation

Handle: RePEc:eee:paresc:v:93:y:2014:i:3:p:595-618
DOI: 10.1111/pirs.12010
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JEL classification:

  • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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