Can Leviathan City Governments Use Tax Policy to Attract the Creative Class?

Batabyal, Amitrajeet and Beladi, Hamid (2023): Can Leviathan City Governments Use Tax Policy to Attract the Creative Class?

Abstract

We focus on an aggregate economy of two nearby cities A and B and study whether it is possible for the leviathan governments in these two cities to use taxes τ^A and τ^B to attract members of the so-called creative class. The creative class population is fixed and members locate either in city A or B depending on the utility from such location. In this setting, we accomplish five tasks. First, given the two taxes, we determine the value of a metric ζ that describes how the creative class population partitions into cities A and B. Second, for a given partition of the creative class population, we state the budget constraints confronting the governments in cities A and B. Third, we state and solve the decision problems of the two governments when they act as independent leviathans and maximize tax revenue. Fourth, we ascertain the efficient taxes that maximize the sum of tax revenues in the aggregate economy. Finally, we discuss the implications of our analysis for tax policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Creative Class, Leviathan City Government, Tax Policy, Tax Revenue
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R50 - General

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