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On regional integration, fiscal income, and GDP per capita

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  • Yutao Han

    (Department of Economics, University of International Business and Economics)

  • Zhen Song

    (CEMA, Central University of Finance & Economics)

Abstract

This paper investigates the economic impacts of regional integration on a small jurisdiction in a dynamic fiscal competition environment. The tradeoffs between the economic benefits and the loss of policy flexibility resulting from integration are analyzed from the perspectives of fiscal revenue and GDP per capita. Our results show that the small jurisdiction's loss of flexibility in policy making can dominate the other effects of integration. Specifically, if the small jurisdiction's efficiency in providing public inputs is originally sufficiently high (low), regional integration always reduces (improves) its net revenue, independently of the extent of efficiency improvement due to integration. However, when the small jurisdiction's efficiency is originally intermediate, the impact on net revenue crucially depends on the magnitude of the efficiency effect. Our analysis also characterizes the tradeoffs resulting from integration between policy flexibility on the one hand and capital mobility and fiscal equalization on the other.

Suggested Citation

  • Yutao Han & Zhen Song, 2017. "On regional integration, fiscal income, and GDP per capita," CEMA Working Papers 600, China Economics and Management Academy, Central University of Finance and Economics.
  • Handle: RePEc:cuf:wpaper:600
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    References listed on IDEAS

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    More about this item

    Keywords

    regional integration; policy flexibility; fiscal revenue; differential game;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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