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Lumpy World and Race to the Bottom

  • Candau Fabien
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    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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    17. Henderson, J. Vernon & Shalizi, Zmarak & Venables, Anthony J., 2000. "Geography and development," Policy Research Working Paper Series 2456, The World Bank.
    18. Behrens, Kristian & Gaigné, Carl & Ottaviano, Gianmarco & Thisse, Jacques-François, 2003. "Inter-regional and International Trade: Seventy Years After Ohlin," CEPR Discussion Papers 4065, C.E.P.R. Discussion Papers.
    19. Federico Revelli, 2002. "Testing the taxmimicking versus expenditure spill-over hypotheses using English data," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1723-1731.
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