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Title: Economic Geography and the Fiscal Effects of Regional Integration

Author(s): Rodney D Ludema and Ian Wooton

Publication Date: March 1998

Keyword(s): Economic Geography, Economic Integration, Factor Mobility, International Trade and Tax Competition

Programme Area(s): Human Resources and International Trade and Regional Economics

Abstract: In models of economic geography, plant-level scale economies and trade costs create incentives for spatial agglomeration of production into a manufacturing core and agricultural periphery, creating regional income differentials. We examine tax competition between national governments to influence the location of manufacturing activity. Labour is imperfectly mobile and governments impose redistributive taxes. Regional integration is modelled as either increased labour mobility or lower trade costs. We show that either type of integration may result in a decrease in the intensity of tax competition, and thus higher equilibrium taxes. Moreover, economic integration must increase taxes when the forces of agglomeration are the strongest.

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Bibliographic Reference

Ludema, R and Wooton, I. 1998. 'Economic Geography and the Fiscal Effects of Regional Integration'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1822