State Tax and Policy Competition For Mobile Capital
We characterise a model in which states engage in tax and policy competition with one another to attract mobile capital. The mix of policies chosen is shown to depend on the interaction between a desire to exploit capital for the benefit of domestic residents (labour) and a net marginal externality generated by capital. It is also argued that competition between states leads to an inefficient supply and geographical distribution of capital within the domestic economy if capital markets are not fully integrated.
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Document Type: Original Article
Affiliations: 1: Curtin University of Technology, Australia, 2: Melbourne University, Australia and University of California Santa Barbara, USA
Publication date: June 1, 2002