Taxation on Agglomeration

Pasquale Commendatore and Ingrid Kubin ()

No 06-08, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Recently, issues of international taxation have also been analysed from a New Economic Geography perspective. These discussions show that adding agglomerative forces can change the results considerably. In the paper, we introduce explicitly taxation and public expenditures into a Footloose Capital Model and investigate the local and global dynamic implications of such a public policy for industry agglomeration. It turns out that agglomeration can be highly sensitive wrt initial conditions and/or parameters and that these dynamic patterns are surprisingly robust wrt to the taxation principle.

Date: 2006
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