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Public Debt and Economic Geography

  • Federico Trionfetti


    (AMSE - Aix-Marseille School of Economics - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - EHESS - École des hautes études en sciences sociales)

This paper studies the consequences of debt policies on the spatial distribution of output in a two-country model. It departs from the usual set up of local public finance by relaxing the assumption of balanced budget. Further, to single out the pure effect of debt the paper eliminates effects coming from tax and expenditure policies by assuming them exogenous and identical between countries except for the timing of taxation. Expected taxation rather than current tax levels motivates migration. Starting from an initial spatial configuration, be it Core-Periphery or symmetric equilibrium, the analysis identifies the critical thresholds of divergence or convergence of debt ratios which break the initial configuration. The paper also shows that a high debt country or a fast debt reducing country is a weaker player in the tax competition game. Lastly, tax harmonisation does not necessarily reduce migration flows.

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Paper provided by HAL in its series Working Papers with number halshs-00793388.

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Date of creation: Sep 2012
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Handle: RePEc:hal:wpaper:halshs-00793388
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  1. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999. "Competing for Capital in a 'Lumpy' World," CEPR Discussion Papers 2188, C.E.P.R. Discussion Papers.
  2. Brülhart, Marius & Trionfetti, Federico, 2001. "Public expenditure and international specialisation," HWWA Discussion Papers 141, Hamburg Institute of International Economics (HWWA).
  3. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  4. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, 04.
  5. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert Nicoud, 2003. "Economic Geography and Public Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179815, HAL.
  6. Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
  7. 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.
  8. Mario Jametti & Marius Brülhart & Kurt Schmidheiny, 2007. "Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?," Working Papers 2007_9, York University, Department of Economics.
  9. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
  10. repec:hal:journl:halshs-00179815 is not listed on IDEAS
  11. Trionfetti, Federico, 2001. "Public Procurement, Market Integration, and Income Inequalities," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 29-41, February.
  12. Frédéric Robert-Nicoud, 2005. "The structure of simple 'New Economic Geography' models (or, On identical twins)," Journal of Economic Geography, Oxford University Press, vol. 5(2), pages 201-234, April.
  13. Ottaviano, Gianmarco I. P., 2001. "Monopolistic competition, trade, and endogenous spatial fluctuations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 51-77, February.
  14. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  15. Shields, Gail M & Shields, Michael P, 1989. " The Emergence of Migration Theory and a Suggested New Direction," Journal of Economic Surveys, Wiley Blackwell, vol. 3(4), pages 277-304.
  16. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
  17. Wellisch, Dietmar & Richter, Wolfram F., 1995. "Internalizing intergenerational externalities by regionalization," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 685-704, December.
  18. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
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