Agglomeration, Tax Competition, and Fiscal Equalization

Wrede M (2014)

Publication Language: English

Publication Type: Journal article

Publication year: 2014


Publisher: Springer Verlag (Germany)

Book Volume: 21

Pages Range: 1012-1027

DOI: 10.1007/s10797-013-9295-7


This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It uses a model focusing on the strategic reason for capital taxes to demonstrate that per capita fiscal capacity equalization improves the spatial allocation of capital provided a sufficiently rich (marginally) larger region and sufficiently strong agglomeration externalities. If tax revenue is used to finance public goods, per capita fiscal capacity equalization generally cannot simultaneously eliminate public good inefficiency and spatial inefficiency. However, the achievement of full efficiency for ex ante identical regions requires excessive (full) equalization in the presence (absence) of agglomeration externalities.

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How to cite


Wrede, M. (2014). Agglomeration, Tax Competition, and Fiscal Equalization. International Tax and Public Finance, 21, 1012-1027.


Wrede, Matthias. "Agglomeration, Tax Competition, and Fiscal Equalization." International Tax and Public Finance 21 (2014): 1012-1027.

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