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Footloose Entrepreneurs, Taxes and Subsidies

  • Pasquale Commendatore
  • Martin Currie
  • Ingrid Kubin

Abstract This paper challenges the robustness of policy propositions of the New Economic Geography. Simply altering the temporal framework of the Footloose Entrepreneur model implies that the system can exhibit periodic cycles, chaotic orbits or agglomeration. Minute changes in a tax or subsidy rate can have dramatic, unpredictable and/or irreversible repercussions on the spatial location of manufacturing industry and on social welfare. The complexity of the dynamics is likely to be exacerbated by competition between governments employing subsidies to attract or retain entrepreneurs. The possibility of complex dynamical behaviour is not eliminated by assuming that entrepreneurs are ‘rational’.

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Article provided by Taylor & Francis Journals in its journal Spatial Economic Analysis.

Volume (Year): 3 (2008)
Issue (Month): 1 ()
Pages: 115-141

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Handle: RePEc:taf:specan:v:3:y:2008:i:1:p:115-141
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  1. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
  2. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  3. Currie, Martin & Kubin, Ingrid, 2006. "Chaos in the core-periphery model," Journal of Economic Behavior & Organization, Elsevier, vol. 60(2), pages 252-275, June.
  4. Gianmarco Ottaviano, 1996. "Monopolistic Competition, Trade and Endogenous Spatial Fluctuations," Working Papers 240, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. 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.
  6. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
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