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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/116665
Do governments tax agglomeration rents?
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Using the German local business tax as a testing ground, we empirically investigate the impact of firm agglomeration on municipal tax setting behavior. The analysis exploits a rich data source on the population of German firms to construct detailed measures for the communities' agglomeration characteristics. The findings indicate that urbanization and localization economies exert a positive impact on the jurisdictional tax rate choice which confirms predictions of the theoretical New Economic Geography (NEG) literature. Further analysis suggests a qualification of the NEG argument by showing that a municipality's potential to tax agglomeration rents depends on its firm and industry agglomeration relative to neighboring communities. To account for potential endogeneity problems, our analysis exploits long-lagged population and infrastructure variables as instruments for the agglomeration measures.
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KOH, Hyun-Ju and RIEDEL, Nadine. Do governments tax agglomeration rents?. IEB Working Paper 2010/21. [consulted: 9 of October of 2026]. Available at: https://hdl.handle.net/2445/116665