Abstract
We set up a model of generalised oligopoly where two countries of different size compete for an exogenous, but variable, number of identical firms. The model combines a desire by national governments to attract internationally mobile firms with the existence of location rents that arise even in a symmetric equilibrium where firms are dispersed. As economic integration proceeds, equilibrium taxes initially decline, but then rise again as trade costs fall even further. A range of trade costs is identified where economic integration raises the welfare of the small country, but lowers welfare in the large country.
Original language | English |
---|---|
Pages (from-to) | 239-248 |
Number of pages | 10 |
Journal | Journal of International Economics |
Volume | 80 |
Issue number | 2 |
DOIs | |
Publication status | Published - Mar 2010 |
Keywords
- tax competition
- subsidy competition
- oligopolistic markets
- economic integration