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Public Debt and Economic Geography

Federico Trionfetti

No 1223, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: This paper studies the consequences of debt policies on the spatial distribution of output in a two-country model. It departs from the usual set up of local public finance by relaxing the assumption of balanced budget. Further, to single out the pure effect of debt the paper eliminates effects coming from tax and expenditure policies by assuming them exogenous and identical between countries except for the timing of taxation. Expected taxation rather than current tax levels motivates migration. Starting from an initial spatial configuration, be it Core-Periphery or symmetric equilibrium, the analysis identifies the critical thresholds of divergence or convergence of debt ratios which break the initial configuration. The paper also shows that a high debt country or a fast debt reducing country is a weaker player in the tax competition game. Lastly, tax harmonisation does not necessarily reduce migration flows.

Keywords: Aix-Marseille University (Aix-Marseille School of Economics); CNRS & EHESS (search for similar items in EconPapers)
JEL-codes: F15 F42 F22 (search for similar items in EconPapers)
Date: 2012-07
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Related works:
Journal Article: Public Debt and Economic Geography (2015) Downloads
Working Paper: Public Debt and Economic Geography (2015)
Working Paper: Public Debt and Economic Geography (2012) Downloads
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