Agglomeration, tax competition, and fiscal equalization

Matthias Wrede

International Tax and Public Finance, 2014, vol. 21, issue 6, 1012-1027

Abstract: This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It uses a model focusing on the strategic reason for capital taxes to demonstrate that per capita fiscal capacity equalization improves the spatial allocation of capital provided a sufficiently rich (marginally) larger region and sufficiently strong agglomeration externalities. If tax revenue is used to finance public goods, per capita fiscal capacity equalization generally cannot simultaneously eliminate public good inefficiency and spatial inefficiency. However, the achievement of full efficiency for ex ante identical regions requires excessive (full) equalization in the presence (absence) of agglomeration externalities. Copyright Springer Science+Business Media New York 2014

Keywords: Agglomeration; Tax competition; Fiscal equalization; R12; H71; H73 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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Working Paper: Agglomeration, tax competition, and fiscal equalization (2009)
Working Paper: Agglomeration, tax competition, and fiscal equalization (2008)
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DOI: 10.1007/s10797-013-9295-7

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