Governments are widely perceived as competing for capital by choosing parameters in a multi-dimensional policy space. We consider the choice of a business tax rate as well as a productive public input by local governments and estimate a model of strategic interaction in both policy instruments....

One of the main weaknesses of empirical models in regional science and urban economics involving spatial interdependence is the arbitrary nature of the weight matrix. The paper considers a refinement of the commonly used contiguity matrix which exploits information on commuting flows between...