In this paper we develop a dynamic model that explains the pattern of population and production allocation in an economy with an urban location and a rural one. Agglomeration economies make urban dwellers benefit from a larger population living in the city and urban firms become more productive...

A well known result in the tax competition literature is that tax rates are set too low in the Nash equilibrium to finance an efficient level of public consumption goods. In this model we introduce international spillovers in public goods provision and show that such spillovers reduce, and in...