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Title: | Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of firm location to local taxes |
Author: | Jofre Monseny, Jordi Solé Ollé, Albert |
Keywords: | Administració local Subvencions Local government Subsidies |
Issue Date: | 2008 |
Publisher: | Institut d’Economia de Barcelona |
Series/Report no: | [WP E-IEB08/04] |
Abstract: | This paper examines the effects of agglomeration economies (AE) on the sensitivity of firm location to tax differentials. An initial reading of the story suggests that, with AE, when a firm moves into a community attracted by a tax reduction, other firms may decide to move in as well. This suggests that AE increase the sensitivity of firm location to local taxes. However, a second version of the story reads that, if economic activities are highly concentrated in space, AE might offset any tax differential, hence suggesting a reduction in this sensitivity. This paper provides a theoretical model of intraregional firm location with Marshallian AE that is able to generate both hypotheses: AE increase (decrease) the effect of taxes when locations are (are not) of a similar size. We then use Spanish municipal data for the period 1995-2002 to test these hypotheses, analyzing the combined effect of local business taxes and Marshallian AE on the intraregional location of employment. In line with the theory, a municipality with stronger AE experiences lower (higher) tax effects if it is sufficiently dissimilar (similar) to its neighbors in terms of size. |
Note: | Reproducció del document publicat a: http://www.ieb.ub.edu/2012022157/ieb/ultimes-publicacions |
It is part of: | IEB Working Paper 2008/04 |
URI: | http://hdl.handle.net/2445/118911 |
Appears in Collections: | IEB (Institut d’Economia de Barcelona) – Working Papers |
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