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No Taxation without Infrastructure

Author

Listed:
  • Stefan Gruber

    (University of Innsbruck, Austria and University of Bologna and The Rimini Center for Economic Analysis, Italy)

  • Luigi Marattin

    (University of Bologna and University of Siena, Italy)

Abstract

This paper presents a New Economic Geography model with distortionary taxation and endogenized transport costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure leads to more pronounced agglomeration patterns. With respect to the regions sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core, the price-index is rather high since the distortionary effect of taxes dominates. Free riding is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch-up process.

Suggested Citation

  • Stefan Gruber & Luigi Marattin, 2007. "No Taxation without Infrastructure," Working Paper series 11_07, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:11_07
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    File URL: http://www.rcea.org/RePEc/pdf/wp11_07.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    New Economic Geography; Taxation; Endogenous Transport Costs; Infrastructure;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • 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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