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Lumpy World and Race to the Bottom

Listed author(s):
  • Candau Fabien

This paper presents a model of the New Economic Geography which integrates commuting costs and land rent and displays a dispersion - agglomeration configuration when regional and/or international trade are liberalised. Two main results are found, the first one is that dispersion Pareto dominates agglomeration, the second one is that the agglomeration rent is not bell-shaped but strictly decreasing when impediments to trade are removed. This turns out to be a convenient framework to revisit the links between tax competition, location of firms and trade integration. It is shown in particular that trade liberalization only leads to a race to the bottom in terms of taxation, and that a tax floor set at the level of the small country may be detrimental to it.

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File URL: http://econwpa.repec.org/eps/it/papers/0508/0508008.pdf
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Paper provided by EconWPA in its series International Trade with number 0508008.

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Length: 24 pages
Date of creation: 17 Aug 2005
Date of revision: 01 Feb 2006
Handle: RePEc:wpa:wuwpit:0508008
Note: Type of Document - pdf; pages: 24
Contact details of provider: Web page: http://econwpa.repec.org

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