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Local Fiscal Strategy to Retain Heterogeneous Firms
Author(s) -
Kilkenny Maureen,
Melkonyan Tigran
Publication year - 2002
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/1467-9787.00280
Subject(s) - economic rent , economics , locale (computer software) , microeconomics , public finance , business , industrial organization , public economics , macroeconomics , computer science , operating system
This paper is about the strategy of retaining unobservably heterogeneous firms attracted by unobservably valued outside alternatives. We prove that differentiating taxation and public good fiscal packages within one’s own locale dominates offering the same packages to all firms. We rationalize the full range of observed practice by considering more than one type of firm, more than one type of fiscal instrument, and all kinds of utility in alternative locations, under asymmetric information. Mobile agents can earn rents under some conditions, and immobile agents earn rents under others. Ways to minimize budgetary exposure in tax wars and effects on the composition of local economies are discussed.