Agglomeration, Tax, And Local Public Goods

Abstract

In this paper, we explore the interaction between taxation and a local public good (LPG) to see how it impacts the spatial pattern in the framework of new economic geography (NEG). In the benchmark case of a pure LPG, the system displays a similar location pattern to the existing NEG taxation model, although the tax reduces the market size of manufactured goods. However, when we consider the inherent congestion of an LPG, we find a new agglomeration force due to the demand of the LPG and a new dispersion force due to its congestion.As a result of their interaction, the congestability is crucial in determining the spatial location pattern.