Competition for Foreign Capital under Asymmetric Revenue-Orientation

Rupayan Pal and Ajay Sharma

Indian Economic Review, 2016, vol. 51, issue 1, 105-116

Abstract: This paper develops a model of inter-regional competition for mobile capital considering that regions may have different revenue-orientations. It shows that, if regions are asymmetric in terms of revenue-orientation, the less revenue-orientated region obtains higher tax-revenue and higher social welfare in the equilibrium than the more revenue-oriented region. However, if regions are symmetric, the equilibrium tax-revenue and social welfare are higher in the case of greater revenue-orientation of regions. Moreover, regions spend on public-investment and end up with Pareto-inferior equilibrium outcome, regardless of whether regions are symmetric or asymmetric. It also analyses implications of public-investment spillover on equilibrium outcomes.

Keywords: Asymmetric Revenue Orientation; Competition for Foreign Capital; Prisoners Dilemma; Public Investment; Spillover; Tax (search for similar items in EconPapers)
JEL-codes: C72 F21 H40 H87 R38 (search for similar items in EconPapers)
Date: 2016
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