We incorporate policy competition into a quantitative spatial model. The interdependence of policymaking among a network of counties is characterized by 3109X3109 endogenous bilateral linkages. These linkages are summarized by ``policy impact'' ---the effect of a jurisdiction’s policy on other jurisdictions. Applying our model to local sales taxes, we find that limits to tax competition increase welfare, albeit heterogeneously, and that ignoring endogenous policies underestimates welfare gains by 6%. Ranking counties by the magnitude of their policy impact, we show that interventions targeting high-policy impact jurisdictions raise welfare by six times more than those targeting low-tax jurisdictions.impact. Then, we show interventions targeting high policy impact jurisdictions raise welfare by 6 times more than targeting low-tax jurisdictions.

The Middle East is often perceived as region with rentier economies and uncompetitive markets. Evidence of market power in the region however is scant. In this paper, we ask the following two questions: Is the Middle East uniquely uncompetitive? Can tax policy be a way to even the playing field? Using comprehensive firm-level data from Compustat between 2004 and 2022 and employing two methods for estimating markups (production function and cost-share approach). We document that market power among listed firms in the Middle East is higher than in the US, but on a downward trend. We find that the value-added tax (VAT) introduced by some Gulf states from 2018 to 2022 resulted in a reduction of market power, an unintended benefit beyond increasing fiscal space. While policymakers should continue to use available antitrust levers to achieve economic efficiency, VAT could be considered as an alternative instrument.

The present study examines the role of the congestion technology in a symmetric tax competition setting with a productive public good and with unemployment. Considering two well-known specifications of congestion, the congestion technology can be shown to be crucial for the analysis of efficiency in both public provision and private utilization of a congestible public input in the decentralized equilibrium: For the specification of decreasing marginal congestion, efficiency in the non-cooperative equilibrium with capital and lump-sum taxation will depend alone on the magnitude of the production and congestion elasticities. In contrast, factor prices and corresponding employment levels are, in addition, important to determine whether both provision and utilization levels of the public input are efficient in case of increasing marginal congestion. Numerical analysis is employed to supplement the results of the theoretical and graphical analysis and to further compare the social optimum to the decentralized equilibria.

We study firm responses to local policies through a survey experiment, providing randomized information on the competitiveness of business tax rates and highway access in their headquarters' municipality. Firms often misperceive local policy competitiveness, especially for tax rates. Investment decisions respond asymmetrically to tax competitiveness. Positive tax rank information reduces investment intentions in neighboring municipalities. Compared to this, negative tax news increases relocation plans. However, most firms receiving bad news plan to continue investing in their headquarters' municipality, indicating home bias. These effects are strongest for mobile firms and corporations. Negative infrastructure news lowers location satisfaction but does not influence investment.