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Competing for Capital in a "Lumpy" World

Listed author(s):
  • Hans Jarle Kind
  • Helene Midelfart
  • Guttorm Schjelderup

This paper uses a new economic geography model to analyze tax competition betweeen two countries trying to attract internationally mobile capital. Each government may levy a source tax on capit al and a lump sum tax on fixed labor. If industry is concentrated in one of the countries, the analysis finds that the host country will gain from setting its source tax on capital above that of the other country. In particular, the host may increase its welfare per capita by setting a positive source tax on capital and capture the positive externality that arise in the agglomeration. If industry is not concentrated, however, both countries will subsidize capital.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-02/WP252.PDF
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 252.

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Date of creation: 2000
Handle: RePEc:ces:ceswps:_252
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  1. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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  4. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
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  6. Bjerksund, Petter & Schjelderup, Guttorm, 1998. "The political economy of capital controls and tax policy in a small open economy," European Journal of Political Economy, Elsevier, vol. 14(3), pages 543-559, August.
  7. David G. Hartman, 1985. "The Welfare Effects of a Capital Income Tax in an Open Economy," NBER Working Papers 1551, National Bureau of Economic Research, Inc.
  8. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  9. Frenkel, Jacob & Razin, Assaf & Sadka, Efraim, 1992. "International taxation in an integrated world," MPRA Paper 23266, University Library of Munich, Germany.
  10. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc.
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  12. Michael J. Boskin & William G. Gale, 1987. "New Results on the Effects of Tax Policy on the International Location of Investment," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 201-222 National Bureau of Economic Research, Inc.
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  14. Krugman, Paul & Venables, Anthony J, 1990. "Integration and the Competitiveness of Peripheral Industry," CEPR Discussion Papers 363, C.E.P.R. Discussion Papers.
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  18. Krugman, Paul & Venables, Anthony J., 1995. "Globalization and the Inequality of Nations," Working Paper Series 430, Research Institute of Industrial Economics.
  19. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
  20. repec:hhs:iuiwop:430 is not listed on IDEAS
  21. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  22. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
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