The existing theoretical literature on fiscal competition has to a large extent ignored the role of government debt as a determinant of taxes and productive public spending. We develop a simple model of fiscal competition with government borrowing. If a default on government debt is no option,...

The implications of high indebtedness for strategic tax setting in internationally integrated capital markets have found little attention so far. We analyze when and how changes in initial debt levels affect the distribution of economic activity across space. When public borrowing is...