Public input competition

Developing Country Second‐Mover Advantage in Competition Over Environmental Standards and Taxes

“…This contrasts with the prior literature, exemplified by Markusen, Morey and Olewiler (1995) and Baldwin and Krugman (2004), in which it is the developed country that has a first-mover advantage derived from its power to act as a limit-pricing monopolist because at the outset firms are located there and have an 'attachment to home.' 8 One objection might be that developing countries typically set relatively low taxes as well as ESs whereas in our model the tax set by developing countries can be relatively high. A simple 'fix' to our model which would enable the developed country to set higher taxes would be to initially locate the mobile firms in the developed country and give them an attachment to home.…”

“…The second more interesting effect is that the clean firm is less elastic in its location decision than the dirty firm; to avoid the relatively large externality exerted by the dirty firm it prefers to locate in the other country, and this creates extra rent that the government can extract from the clean firm through higher taxation. 8 From this perspective, the most surprising equilibrium outcome is actually case (b) where the developing country becomes a pollution haven, setting the minimum ES and attracting the dirty firm. In this case the developed country can make sharing firms attractive for the developing country by setting its ES at a high level and attracting the clean firm; at a low mcpe, this high ES level makes the developed country unattractive to the relatively noxious dirty firm.…”

Mobile tax base as a global common

“…9 I leave it open what instruments are used when pursuing these goals, but assume that the application of these means is costly. I will …rst allow for countries using both modes of competition: investments in loyalty of citizens, followed by price competition in terms of setting tax rates.…”

“…Menezes (2003), applying auction theory to this type of …scal competition considers several variants of auctions, including 8 Their o¢ cial aims are stated in their federal charta of June 15, 1916: "...to teach them patriotism, courage, self-reliance, and kindred virtues, using the methods which are now in common use by Boy Scouts." 9 The role of home attachment has received attention in the literature on decentralized decision making in federations (e.g., Mansoorian and Myers 1993) and in the context of tax competition (e.g., Andersson andKonrad 2003, Ogura 2006). 10 Investors react to taxes.…”

“…If a customer knows one …rm only, he buys from 11 Several researchers took up this type of competition. Bucovetsky (2005) considers infrastructure investment in a context with agglomeration. Benassy-Quere, Gobalraja and Trannoy (2007) allow for both tax competition and public input competition.…”