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A note on tax analysis in a two-region model of monopolistic competition

Author

Listed:
  • Hikaru Ogawa

    (University of Tokyo)

  • Masafumi Tsubuku

    (Daito Bunka University)

Abstract

Takatsuka (Pap Reg Sci 93:595–617, 2014) compares the effects of ad valorem and unit taxes on firm location, within the framework of new trade theory. In the model, the unit tax is imposed at the instant of production, but the ad valorem tax is imposed at the instant of consumption. Since a portion of the good “melts away” during transportation, the actual amount of consumption (tax base) decreases from the point of production. This note presents a consistent application of taxation and clarifies how the timing of taxation characterizes the equilibrium location pattern.

Suggested Citation

  • Hikaru Ogawa & Masafumi Tsubuku, 2017. "A note on tax analysis in a two-region model of monopolistic competition," Letters in Spatial and Resource Sciences, Springer, vol. 10(3), pages 327-335, October.
    • Handle: RePEc:spr:lsprsc:v:10:y:2017:i:3:d:10.1007_s12076-017-0187-9
    DOI: 10.1007/s12076-017-0187-9
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    References listed on IDEAS

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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. Hajime Takatsuka, 2014. "Tax effects in a two-region model of monopolistic competition," Papers in Regional Science, Wiley Blackwell, vol. 93(3), pages 595-617, August.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. Michael Keen, 1998. "The balance between specific and ad valorem taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 1-37, February.
    5. Behrens, Kristian & Picard, Pierre M., 2011. "Transportation, freight rates, and economic geography," Journal of International Economics, Elsevier, vol. 85(2), pages 280-291.
    6. Behrens, Kristian & Gaigné, Carl & Thisse, Jacques-François, 2009. "Industry location and welfare when transport costs are endogenous," Journal of Urban Economics, Elsevier, vol. 65(2), pages 195-208, March.
    7. Takahashi, Takaaki, 2006. "Economic geography and endogenous determination of transport technology," Journal of Urban Economics, Elsevier, vol. 60(3), pages 498-518, November.
    8. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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    Keywords

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • 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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