Competing for Capital in a 'Lumpy' World

Hans Jarle Kind, Guttorm Schjelderup and Karen Helene Ulltveit-Moe

No 2188, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper uses a new economic geography model to analyze tax competition between two countries trying to attract internationally mobile capital. Each government may levy a source tax on capital and a lump sum tax on fixed labor. If industry is concentrated in one of the countries, the analysis finds that the host country will gain from setting its source tax on capital above that of the other country. In particular, the host may increase its welfare per capita by setting a positive source tax on capital and capture the positive externality that arise in the agglomeration. If industry is not concentrated, however, both countries will subsidize capital.

Keywords: Economic Geography; Economic Integration; Industrial Agglomeration; Tax Competition (search for similar items in EconPapers)
JEL-codes: F12 F15 H2 (search for similar items in EconPapers)
Date: 1999-07
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Competing for capital in a 'lumpy' world (2000)
Working Paper: Competing for Capital in a "Lumpy" World (2000)
Working Paper: Competing for Capital in a "Lumpy" World (1999)
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