Efficient Regional Taxes in the Presence of Mobile Creative Capital
RIT Economics Department Working Paper No. 22-1
20 Pages Posted: 2 Mar 2022
There are 2 versions of this paper
Efficient Regional Taxes in the Presence of Mobile Creative Capital
Efficient Regional Taxes in the Presence of Mobile Creative Capital
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: Suggested Citation