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Lumpy World and Race to the Bottom

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  • Candau Fabien

Abstract

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.

Suggested Citation

  • Candau Fabien, 2005. "Lumpy World and Race to the Bottom," International Trade 0508008, University Library of Munich, Germany, revised 20 Feb 2006.
    • Handle: RePEc:wpa:wuwpit:0508008
    Note: Type of Document - pdf; pages: 24
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    Cited by:

    1. Fabien Candau, 2008. "Good governance, trade and agglomeration," Papers in Regional Science, Wiley Blackwell, vol. 87(4), pages 483-504, November.
    2. Candau, Fabien, 2006. "The Spatial and Public Economics of Regions, a Theoretical and Empirical Survey," MPRA Paper 1153, University Library of Munich, Germany.

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    More about this item

    Keywords

    Economic geography; Cities; Trade; Tax competition.;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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