Intra-regional Tax Competition and Economic Geography
CESifo, Munich, 2007
CESifo Working Paper No. 2113
We extent a solvable version of the core-periphery agglomeration model to four countries located in two regions. The paper shows that there might still be a race to the bottom in capital income tax rates despite agglomeration rents earned by the mobile factor. We find that intra-regional tax competition is detrimental from a welfare perspective and that tax harmonisation unambiguously makes both countries in the core region better off.