A spatial model of tax competition with multiple tax instruments

This paper presents a model of tax competition with two local jurisdictions in each metropolitan area, located along a line segment, and many metropolitan areas in the world economy. The residents in each local jurisdiction are allowed to commute, at a constant cost per mile, to work in the other jurisdiction. If a lump-sum tax can be used, then other taxes are not used. If source-based wage and business capital taxes can both be used, then only the former is used. In this case, or if only a business capital tax can be used, the local public good is underprovided. (C) 2000 Academic Press.