Title:
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Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of firm location to local taxes
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Author:
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Jofre Monseny, Jordi; Solé Ollé, Albert
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Notes:
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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. |
Subject(s):
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-Administració local -Subvencions -Local government -Subsidies |
Rights:
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cc-by-nc-nd, (c) Jofre Monseny, 2008
http://creativecommons.org/licenses/by-nc-nd/3.0/es/
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Document type:
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Working Paper |
Published by:
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Institut d’Economia de Barcelona
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