Fiscal competition for imperfectly-mobile labor and capital: A comparative dynamic analysis

Interjurisdictional flows of imperfectly-mobile migrants, investment, and other productive resources result in the costly dynamic adjustment of resource stocks. This paper investigates the comparative dynamics of adjustment to changes in local fiscal policy with two imperfectly mobile productive resources. The intertemporal adjustments for both resources depend on complementarity/substitutability in production and the adjustment cost technologies for each, implying that the evaluation of the fiscal treatment of one resource must account for the simultaneous adjustment of both.

Research Highlights
► Analyzes fiscal competition and incidence of fiscal policies in open economy.
► Imperfect mobility is modeled as a dynamic stock-adjustment process.
► Two imperfectly mobile factors adjust simultaneously to changes in fiscal treatment of either.