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Investment in public infrastructure with spillovers and tax competition between contiguous regions

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  • DEMBOUR, Carole
  • WAUTHY, Xavier

Abstract

Two contiguous regions compete to attract a population of heterogeneous firms. They choose infrastructure levels in a first stage and compete in taxes in a second stage. We study the properties of Subgame Perfect Nash equilibria in this stage game depending on the extent to which the benefits of infrastructure spill over from one region to the other. First, we show that the presence of inter-regional spillovers allows jurisdictions to control for the intensity of tax competition and therefore affects the optimal levels of infrastructure selected at equilibrium. Second, by comparing the non-cooperative and cooperative outcomes, we show that the extent to which regions overinvest in infrastructures negatively depends on the intensity of the spillovers.
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  • DEMBOUR, Carole & WAUTHY, Xavier, 2009. "Investment in public infrastructure with spillovers and tax competition between contiguous regions," LIDAM Reprints CORE 2161, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2161
    DOI: 10.1016/j.regsciurbeco.2009.02.007
    Note: In : Regional Science and Urban Economics, 39, 679-687, 2009
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    Cited by:

    1. Gerda Dewit & Kate Hynes & Dermot Leahy, 2018. "Corporate Tax Games With Cross‐Border Externalities From Public Infrastructure," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1047-1063, April.
    2. Batabyal, Amitrajeet & Beladi, Hamid, 2020. "Interregional Demand for Workers and the Effects of Labor Income Taxation," MPRA Paper 102525, University Library of Munich, Germany, revised 17 Jul 2020.
    3. Marcel Gérard & Fernando Ruiz, 2006. "Interjurisdictional Competition for Higher Education and Firms," CESifo Working Paper Series 1719, CESifo.
    4. Hernández, Aday & Jiménez, Juan Luis, 2014. "Does high-speed rail generate spillovers on local budgets?," Transport Policy, Elsevier, vol. 35(C), pages 211-219.
    5. Pal, Rupayan & Sharma, Ajay, 2013. "Endogenizing governments' objectives in tax competition," Regional Science and Urban Economics, Elsevier, vol. 43(4), pages 570-578.
    6. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
    7. Ivo Bischoff & Simon Melch & Eva Wolfschuetz, 2019. "Does tax competition drive cooperation in local economic development policies? Evidence on inter-local business parks in Germany," MAGKS Papers on Economics 201906, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    8. Yutao Han, & Patrice Pieretti & Giuseppe Pulina, 2020. "The impact of tax and infrastructure competition on the protability of local firms," BCL working papers 149, Central Bank of Luxembourg.
    9. Pal, Rupayan & Sharma, Ajay, 2016. "Competition for Foreign Capital under Asymmetric Revenue-Orientation," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 51(1), pages 105-116.
    10. Rupayan Pal & Ajay Sharma, 2011. "Competition for foreign capital: Endogenous objective, public investment and tax," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-021, Indira Gandhi Institute of Development Research, Mumbai, India.
    11. Jussila Hammes , Johanna & Nilsson, Jan-Eric, 2015. "The allocation of transport infrastructure in Swedish municipalities: welfare maximization, political economy or both?," Working papers in Transport Economics 2015:4, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    12. Florian Kuhlmey & Beat Hintermann, 2016. "Public Provision and Local Income Tax Competition," CESifo Working Paper Series 5789, CESifo.
    13. Sharma, Ajay & Pal, Rupayan, 2019. "Nash equilibrium in tax and public investment competition," International Review of Economics & Finance, Elsevier, vol. 62(C), pages 106-120.
    14. Pieretti, Patrice & Pulina, Giuseppe, 2020. "Does eliminating international profit shifting increase tax revenue in high-tax countries?," Economic Modelling, Elsevier, vol. 93(C), pages 717-727.
    15. C. Dembour, 2008. "Competition for Business Location: A Survey," Journal of Industry, Competition and Trade, Springer, vol. 8(2), pages 89-111, June.
    16. Carsten Eckel & Yutao Han & Kate Hynes & Jin Zhang, 2021. "Structural fund, endogenous move and commitment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(2), pages 465-482, April.
    17. repec:wyi:journl:002193 is not listed on IDEAS

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