1. Agglomeration, integration and tax harmonisation
- Author
-
Baldwin, Richard E. and Krugman, Paul
- Subjects
Economic geography -- Analysis ,Commerce -- Management ,Company business management ,Business ,Business, international ,Economics - Abstract
Consideration of agglomeration reverses standard theoretical propositions in international tax competition. We show greater economic integration may lead to a 'race to the top' rather than a race to the bottom. Also, 'split the difference' tax harmonisation may harm both nations, a result that may explain why real-world tax harmonisation is rare. The key is that industrial concentration creates 'agglomeration rent.' The 'core' region can thus charge a higher tax rate without losing capital. The size of such rent is a bell-shaped function of the level of integration, so the tax gap first widens before narrowing as integration increases. JEL classification: H00; H87; F2; F12 Keywords: Economic geography; Trade; Tax competition; Tax harmonization
- Published
- 2004