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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 15/2010:
Agglomeration, tax competition and local public goods supply.

Eva Benedicte Danielsen Norman () and Victor Danielsen Norman ()

Abstract: In this paper we develop a framework for studying tax competition and local public goods supply in a setting where real and fiscal externalities interact with local democracy. We use the framework (a) to analyse if there is any reason to believe that local autonomy generally will give a tax race to the bottom (there is not), and (b) to look more closely at possible sources of oversupply or undersupply of publicly provided goods in a setting where local democracies compete for people. We identify two potential sources – the relationship between individual mobility and willingness to pay for publicly provided goods, and the mobility distribution of individuals (i.e. the distribution of individuals over residential preferences). The two could reinforce each other in a local democracy if the majority of the residents in a community are relatively mobile (the “American” case), while they would pull in opposite directions if the majority of residents are relatively immobile (the “European” case).

Keywords: Tax competition; local public goods; agglomeration; migration; regional economic policy; (follow links to similar papers)

JEL-Codes: F12; H21; H73; J61; (follow links to similar papers)

22 pages, August 17, 2010

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