published in: European Economic Review, 2006, 50 (3), 647-668
Tax competition for a mobile factor is different in 'new economic geography settings'
compared to standard tax competition models. The agglomeration rent which accrues to the
mobile factor in the core region can be taxed. Moreover, a tax differential between the core
and the periphery can be maintained. The present paper reexamines this issue in a setting
which, in addition to core-periphery equilibria, exhibits stable equilibria with partial
agglomeration. We show that a tax differential may arise as an equilibrium of the tax game
even when there is only partial agglomeration and the mobile factor does not derive an
agglomeration rent.
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