Can Taxes Drive Agglomeration While Approaching the Global Economy?

IGIER Working Paper No. 157

26 Pages Posted: 9 Mar 2000

See all articles by Luisa Lambertini

Luisa Lambertini

Ecole Polytechnique Fédérale de Lausanne

Giovanni Peri

University of California, Davis - Department of Economics

Date Written: October 20, 1999

Abstract

In the transitional phase towards full economic integration, European countries have the possibility of re-shaping the continental geography of specialization. We develop a two-sector two-country model that shows formally how fiscal policy can be critical in promoting specialization in a phase where increasing returns are strong enough to sustain agglomeration but local barriers are too high for agglomeration to arise endogenously. We show that, in this intermediate phase, the optimal policy is to levy asymmetric taxes on the two sectors in order to induce agglomeration and therefore welfare benefits to both countries.

JEL Classification: H2, F1

Suggested Citation

Lambertini, Luisa and Peri, Giovanni, Can Taxes Drive Agglomeration While Approaching the Global Economy? (October 20, 1999). IGIER Working Paper No. 157. Available at SSRN: https://ssrn.com/abstract=194128 or http://dx.doi.org/10.2139/ssrn.194128

Luisa Lambertini

Ecole Polytechnique Fédérale de Lausanne ( email )

Odyssea
Station 5
Lausanne, 1015
Switzerland

Giovanni Peri (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-3033 (Phone)
530-752-9382 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
67
Abstract Views
698
rank
335,235
PlumX Metrics