Competition for Foreign Capital under Asymmetric Revenue-Orientation

Pal, Rupayan and Sharma, Ajay (2016): Competition for Foreign Capital under Asymmetric Revenue-Orientation. Published in: Indian Economic Review , Vol. 1/2, No. 51 (December 2016): pp. 105-116.

Abstract

This paper develops a model of inter-regional competition for mobile capital considering that regions may have different revenue-orientations. It shows that, if regions are asymmetric in terms of revenue-orientation, the less revenue-orientated region obtains higher tax-revenue and higher social welfare in the equilibrium than the more revenue-oriented region. However, if regions are symmetric, the equilibrium tax-revenue and social welfare are higher in the case of greater revenue-orientation of regions. Moreover, regions spend on public-investment and end up with Pareto-inferior equilibrium outcome, regardless of whether regions are symmetric or asymmetric. It also analyses implications of public-investment spill-over on equilibrium outcomes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric revenue orientation, Competition for foreign capital, Prisoners’ Dilemma, Public investment, Spillover, Tax
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; H - Public Economics > H8 - Miscellaneous Issues > H87 - International Fiscal Issues ; International Public Goods; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R38 - Government Policy; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R50 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R53 - Public Facility Location Analysis ; Public Investment and Capital Stock

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