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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

The rapid urbanization trend of the world economy implies an increasing importance of cities as basic units of national and international trade. Given that the cities within an economy constitute some form of hierarchical structure, we model the endogenous formation of a hierarchical urban system. To overcome the multiplicity of equilibria, we propose an evolutionary approach which combines a general equilibrium model with an adjustment dynamics. It is demonstrated that as the economy's population size increases gradually, the urban system self-organizes into a highly regular hierarchical system a la Christaller. Keywords: Urban system; Self-organization; Evolution

The paper considers the location of two industries in two countries. Both industries are imperfectly competitive, producing goods for final consumption and use as intermediates. Intermediate usage creates cost and demand linkages between firms, encouraging industrial agglomeration. With high trade barriers each industry operates in both locations in order to supply final consumers. At lower trade barriers agglomeration forces dominate and each industry concentrates in a single location. Economic integration therefore induces agglomeration. There are long run gains from integration, but during the adjustment process some of the labour force may suffer lower real wages as relocation of industry occurs. Keywords: Industrial location; Integration; Agglomeration