Two Games of Interjurisdictional Competition When Local Governments Provide Industrial Public Goods

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Abstract

In this paper we investigate two different games of interjurisdictional competition when local governments provide public goods that benefit industry. Governments play a game either in tax rates on mobile industrial capital or in public expenditures. Although the literature suggests that competition in public expenditures is ‘more competitive’ than in tax rates, this is not necessarily true in the case of industrial public goods. Moreover, in the presence of industrial public goods interjurisdictional competition may also lead to overprovision of public services.

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