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Tax Competition and Economic Geography

Author

Listed:
  • Fredrik Andersson
  • Rikard Forslid
Abstract
Tax competition between two countries is considered in a trade–and–location setting with differentiated products and monopolistic competition. There are two groups of workers, mobile ones and immobile ones. Taxes are used for producing a public good. It is shown that an equilibrium with mobile workers dispersed across countries is destabilized by increased taxes on these mobile workers—even for perfectly coordinated tax increases. It is also shown that while tax competition gives rise to standard distortions in a tax–competition game when mobile workers are dispersed, different distortions result when they are concentrated in one country.

Suggested Citation

  • 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, April.
    • Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:279-303
    DOI: 10.1111/1467-9779.00133
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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