SPATIAL COMPETITION BETWEEN JURISDICTIONS WHICH TAX PERFECTLY COMPETITIVE RETAIL (OR PRODUCTION) CENTERS

This paper examines the taxes that jurisdictions choose to impose on perfectly competitive retail centers (or production centers) within their boundaries. Retail centers are located on a line, and jurisdictions are segments of the line. A jurisdiction maximizes the sum of tax revenues and residents′ consumer surplus. The tax chosen by a jurisdiction is a function of the spacing between retail centers, the locations of interjurisdictional boundaries, and the taxes imposed by neighboring jurisdictions. An exporting jurisdiction chooses a positive tax. An importing jurisdiction chooses a zero tax, even if neighboring jurisdictions have taxes or subsidies. If all jurisdictions with retail centers use endogenous fiscal policy, then each imposes a positive or zero tax. © 1993 Academic Press. All rights reserved.