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Agglomeration and Tax Competition

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  • Rainald Borck
  • Michael Pflüger

Abstract

Tax competition for a mobile factor is different in "new economic geography settings" compared to standard tax competition models. The agglomeration rent which accrues to the mobile factor in the core region can be taxed. Moreover, a tax differential between the core and the periphery can be maintained. The present paper reexamines this issue in a setting which, in addition to the core-periphery equilibria, exhibits stable equilibria with partial agglomeration. We show that a tax differential may arise as an equilibrium of the tax game even when there is only partial agglomeration and the mobile factor does not derive an agglomeration rent.

Suggested Citation

  • Rainald Borck & Michael Pflüger, 2004. "Agglomeration and Tax Competition," Discussion Papers of DIW Berlin 408, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp408
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    More about this item

    Keywords

    Economic geography; Agglomeration; Tax competition;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • 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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