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Discussion Paper Details

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Title: Competing for Capital in a 'Lumpy' World

Author(s): Hans Jarle Kind, Guttorm Schjelderup and Karen-Helene Ulltveit-Moe

Publication Date: July 1999

Keyword(s): Economic Geography, Economic Integration, Industrial Agglomeration and Tax Competition

Programme Area(s): International Trade and Regional Economics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2188

Bibliographic Reference

Kind, H, Schjelderup, G and Ulltveit-Moe, K. 1999. 'Competing for Capital in a 'Lumpy' World'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2188