Local Fiscal Strategy to Retain Heterogeneous Firms

19 Pages Posted: 17 Feb 2003

See all articles by Maureen Kilkenny

Maureen Kilkenny

Dept of Resource Economics

Tigran A. Melkonyan

University of Maryland - Department of Agricultural & Resource Economics

Abstract

This paper is about the strategy of retaining unobservably heterogeneous firms attracted by unobservably valued outside alternatives. We prove that differentiating taxation and public good fiscal packages within one's own locale dominates offering the same packages to all firms. We rationalize the full range of observed practice by considering more than one type of firm, more than one type of fiscal instrument, and all kinds of utility in alternative locations, under asymmetric information. Mobile agents can earn rents under some conditions, and immobile agents earn rents under others. Ways to minimize budgetary exposure in tax wars and effects on the composition of local economies are discussed.

Suggested Citation

Kilkenny, Maureen and Melkonyan, Tigran, Local Fiscal Strategy to Retain Heterogeneous Firms. Available at SSRN: https://ssrn.com/abstract=370478

Maureen Kilkenny (Contact Author)

Dept of Resource Economics ( email )

Reno, NV 89557
United States
775 784 6785 (Phone)

Tigran Melkonyan

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

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