Efficient Regional Taxes in the Presence of Mobile Creative Capital

RIT Economics Department Working Paper No. 22-1

20 Pages Posted: 2 Mar 2022

See all articles by Amitrajeet A. Batabyal

Amitrajeet A. Batabyal

Rochester Institute of Technology

Peter Nijkamp

Vrije Universiteit Amsterdam, School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 14, 2022

Abstract

We study interregional competition for mobile creative capital between regions A and B. Regional authorities (RAs) in both regions use tax policy to attract the creative capital possessing members of the creative class to their region. The resulting tax revenues help RAs finance other objectives such as the provision of one or more public goods. In this setting, we accomplish five tasks. First, we explain the significance of a parameter ζ that is related to the marginal product of creative capital. Second, we compute the Nash equilibrium tax rates when each RA chooses its tax rate to maximize tax revenue. Third, we discuss how a decline in ζ affects the Nash equilibrium tax rates. Fourth, we determine the two efficient tax rates. Finally, we discuss the implications of our analysis for a policy that raises revenue by taxing creative capital.

Keywords: Competition, Creative Capital, Efficiency, Mobility, Tax Revenue

JEL Classification: R11, R50, H20

Suggested Citation

Batabyal, Amitrajeet A. and Nijkamp, Peter, Efficient Regional Taxes in the Presence of Mobile Creative Capital (January 14, 2022). RIT Economics Department Working Paper No. 22-1, Available at SSRN: https://ssrn.com/abstract=4009254 or http://dx.doi.org/10.2139/ssrn.4009254

Amitrajeet A. Batabyal (Contact Author)

Rochester Institute of Technology ( email )

Department of Economics, RIT
92 Lomb Memorial Drive
Rochester, NY NEW YORK 14623-5604
United States
5853134063 (Phone)
5854755777 (Fax)

HOME PAGE: http://people.rit.edu/aabgsh

Peter Nijkamp

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
33
Abstract Views
285
PlumX Metrics