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Efficient Regional Taxes in the Presence of Mobile Creative Capital

Author

Listed:
  • Amitrajeet A. Batabyal
  • Peter Nijkamp

Abstract

We study interregional competition for mobile creative capital between regions A and B. Regional authorities (RAs) in both regions use tax policy to attract the creative capital possessing members of the creative class to their region. The resulting tax revenues help RAs finance other objectives such as the provision of one or more public goods. In this setting, we accomplish five tasks. First, we explain the significance of a parameter ζ that is related to the marginal product of creative capital. Second, we compute the Nash equilibrium tax rates when each RA chooses its tax rate to maximize tax revenue. Third, we discuss how a decline in ζ affects the Nash equilibrium tax rates. Fourth, we determine the two efficient tax rates. Finally, we discuss the implications of our analysis for a policy that raises revenue by taxing creative capital.
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Suggested Citation

  • Amitrajeet A. Batabyal & Peter Nijkamp, 2022. "Efficient Regional Taxes in the Presence of Mobile Creative Capital," The Review of Regional Studies, Southern Regional Science Association, vol. 52(2), pages 198-209.
    • Handle: RePEc:rre:publsh:v:52:y:2022:i:2:p:198-209
    DOI: 10.52324/001c.37969
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    Cited by:

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    2. Amitrajeet A. Batabyal & Hamid Beladi, 2023. "Can Leviathan City Governments Use Tax Policy to Attract the Creative Class?," The Review of Regional Studies, Southern Regional Science Association, vol. 53(3), pages 236-246.
    3. Batabyal, Amitrajeet & Beladi, Hamid, 2024. "Political Power Shifts, Varying Tax Policy, and Economic Outcomes in a Creative Region," MPRA Paper 122595, University Library of Munich, Germany, revised 29 Oct 2024.

    More about this item

    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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