On the theory of interregional tax incidence

The state of factor income distribution prevailing in a local jurisdiction may be greatly influenced by the change in tax policies carried out by some other local jurisdictions through the market mechanism. The theory of interregional tax incidence is concerned with the problem of interactive distributional effects among local jurisdictions when each local government executes independently tax policies. This paper develops a new method of conducting a comparative static analysis on the current issue by making use of a general equilibrium model of interregional tax incidence characterized by the assumption that labor is perfectly immobile between different jurisdictions.