Tax competition with spillover public goods in a median location model
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This study explores the role of median location in a core-periphery model (using a footloose entrepreneur version) with public goods. Taxation for each region is used for producing public good with spillovers effect among regions. Two kinds of taxation are considered. One is the Nash tax with the goal of each region’s utility. The other is the optimal taxation with the goal of the sum of each region’s utility. Two kinds of location configurations for three regions are considered: one is an equilateral triangle (with no median location). The other is the configuration in which three points are equidistant between two adjacent points on a line (with median region). The results show that the Nash tax rate of median region will be smaller than that of non-median region for a symmetric distribution of firms. On the contrary, the optimal tax of median region will be higher than that of non-median region.
KeywordsAgglomeration Public goods Median location Economic geography Tax competition Optimal taxation
I would like to thank two anonymous referees for their helpful suggestions and Xiwei Zhu as well as participants at the 7th Asian Seminar in Regional Science at National Taiwan University in 2017 for their comments. Financial support from the Ministry of Science and Technology, Taiwan (NSC 102-2410-H-305-004-MY2) is gratefully acknowledged.
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