Fiscal Competition, Convergence and Agglomeration
Maximilian von Ehrlich () and
Matthias Wrede ()
No 2084, CESifo Working Paper Series from CESifo Group Munich
This paper analyzes the impact of fiscal competition through infrastructure in a New Economic Geography framework. It is shown that regional competition leads to convergence if the trade costs are high but induces divergence if trade cost have fallen below a certain value. Moreover, fiscal competition yields an overprovision if the trade costs are sizable while it leads to underprovision if the regions are highly integrated. Finally, a trade-off between regional convergence and efficiency arises since the efficient distribution of regional infrastructure requires full agglomeration for sufficiently low trade costs.
Keywords: fiscal competition; infrastructure; agglomeration (search for similar items in EconPapers)
JEL-codes: F12 F15 H87 R12 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2084
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