Competition for Foreign Capital under Asymmetric Revenue-Orientation

Rupayan Pal and Ajay Sharma

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a model of inter-regional competition for mobile capital considering that regions may have different revenue-orientations. It shows that, if regions are asymmetric in terms of revenue-orientation, the less revenue-orientated region obtains higher tax-revenue and higher social welfare in the equilibrium than the more revenue-oriented region. However, if regions are symmetric, the equilibrium tax-revenue and social welfare are higher in the case of greater revenue-orientation of regions. Moreover, regions spend on public-investment and end up with Pareto-inferior equilibrium outcome, regardless of whether regions are symmetric or asymmetric. It also analyses implications of public-investment spill-over on equilibrium outcomes.

Keywords: Asymmetric revenue orientation; Competition for foreign capital; Prisoners’ Dilemma; Public investment; Spillover; Tax (search for similar items in EconPapers)
JEL-codes: C72 F2 F21 H25 H87 R38 R5 R50 R53 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-gth
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Published in Indian Economic Review 51.1/2(2016): pp. 105-116

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Related works:
Journal Article: Competition for Foreign Capital under Asymmetric Revenue-Orientation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88366

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