Tax Competition between the traditional analysis and the clarification provided by the New Economic Geography

Abstract

In a context of international globalization and international trade, the factors mobile producers and / or the population make rational choices because of location preference based on fiscal structures and public policies conducted by each jurisdiction. These arbitrages could create a race to lower rates fiscal since each locality tries to promote its territory by playing on the factor fiscal; competition in this term presents a real interest for governments and for policy-makers who try to encourage multinational corporations (MNCs) to join and invest in their country and make it economically attractive. Indeed, in order to illustrate this concept of Tax Competition in economic thought, this work attempts firstly to give a general overview of the main results of the literature classical theory on Tax Competition, this analysis is done in order to give an idea about the basic models of Zodrow and Mieszkowski (1986) and weldasin (1988) as well as how this concept can influence public decisions by presenting the fiscal federalism analysis of the American economist Tiebout of the “voting with one’s feed” (1956). Secondly, in the context of the Tax Competition, we will present a theoretical approach of the New Economy Geography developed generally by Paul Krugman and which was one of the main results of the application of regional economics on new theories of international trade, this so-called spatial analysis is interested in the forces of agglomeration and dispersion which explain in this context, the spatial distribution of mobile factors of production and activities economic.

JEL Classification: B17, B22, B27, F23, H32

Paper type: Theoretical Research