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Corporate Tax Systems and the Location of Industry

Magnus Wiberg ()
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Magnus Wiberg: Ministry of finance, Postal: Swedish Government Offices , SE-103 33 Stockholm, Sweden.

No 2010:6, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper analyzes the effects of different corporate tax systems on the location of industry within an economic geography model with regional size asymmetries. Both the North and the South gain industry by adopting a tax regime that produces the lowest tax level. As the share of expenditures in the North increases, the Nash equilibrium has this region setting regressive taxes, while the South introduces progressive taxation. The unilateral welfare-maximizing tax structure in the North (South) is the regressive (progressive) system when expenditures in the North increase. Welfare in the North (South) is however maximized if both regions set regressive (progressive) taxes, while regressive (progressive) taxation in both regions represents a joint welfare maximizing outcome if the economic size of the North is higher (lower) than a certain threshold value. As trade is liberalized, the equilibrium tax regime adopted depends on how pro ts respond to lower trade costs. Proportional taxation is never an equilibrium, neither as regional spending changes, nor as trade is liberalized.

Keywords: Economic Geography; Tax Systems; Corporate Taxation (search for similar items in EconPapers)
JEL-codes: F12 H25 R12 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-04-14
New Economics Papers: this item is included in nep-acc, nep-geo, nep-pbe, nep-pub and nep-ure
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