Using Taxes to Attract the Creative Class in the Presence of a Region-Specific Rent

Amitrajeet Batabyal and Seung Jick Yoo

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze interregional competition between two regions A and B that use taxes to attract a representative creative class member (the entrepreneur). This entrepreneur establishes a firm in either region A or B and this action guarantees her profit. However, if the entrepreneur locates in region A then she also obtains a stochastic, location-specific rent that is either high with positive probability or low with positive complementary probability. In this setting, we accomplish three tasks. First, given values of the two tax rates, we determine the payoff to the entrepreneur in the two regions for the two possible values of the location-specific rent in A. Second, we ascertain when the entrepreneur will locate in A for both values of the rent and when she will locate in B. Finally, we compute the tax rate that B will set and then specify a condition which ensures that the entrepreneur locates in B.

Keywords: Creative Class; Entrepreneur; Interregional Competition; Region-Specific Rent; Tax (search for similar items in EconPapers)
JEL-codes: H25 R11 (search for similar items in EconPapers)
Date: 2022-11-10, Revised 2023-01-02
New Economics Papers: this item is included in nep-ent, nep-geo, nep-pbe, nep-pub and nep-ure
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Journal Article: Using Taxes to Attract the Creative Class in the Presence of a Region-Specific Rent (2023)
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