Increasing Returns, Learning, and Beneficial Tax Competition
We analyze the welfare impact of entrepreneur mobility in a two-country model. Increasing returns in production yield multiple equilibria that are stable under adaptive learning. Governments compete for the mobile resource by setting income taxes. We show that large welfare gains can arise from noncooperative taxation. If expectational barriers prevent the realization of high output equilibria, tax competition can sufficiently perturb expectations so that high steady states become attainable. Once in a high production regime, governments may institute cooperative tax increases or reductions so as to bring the economy to the global joint optimum without disturbing the regime.
|Date of creation:||Nov 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (504) 280-6485
Web page: http://www.uno.edu/~coba/econ/index.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:uno:wpaper:2005-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janet Murphy Crane)
If references are entirely missing, you can add them using this form.