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Fiscal Competition, Convergence and Agglomeration

Robert Fenge, Maximilian von Ehrlich () and Matthias Wrede ()

No 2084, CESifo Working Paper Series from CESifo Group Munich

Abstract: 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)
Date: 2007
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