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Taxes, Agglomeration Rents and Location Decisions of Firms

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  • Karen Crabbé
  • Karolien De Bruyne

Abstract

The goal of this paper is to analyze the individual impact of tax rates and agglomeration rents as well as their interaction on location decisions of manufacturing firms within Belgium. Theoretically, both location determinants may weaken each other’s impact. Using a unique 10-year dataset concerning the number of newly setup manufacturing firms at the sector level for 43 Belgian districts, we show that local effective tax rates have a negative impact on location decisions. Moreover, location-specific supply-side agglomeration rents attract new firms and their impact appears to be even stronger for more spatially concentrated sectors. Finally, we show that a higher effective tax rate in a district does not necessarily deter new firms in more agglomerated districts, pointing to the existence of taxable location-specific agglomeration rents. Copyright Springer Science+Business Media New York 2013

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  • Karen Crabbé & Karolien De Bruyne, 2013. "Taxes, Agglomeration Rents and Location Decisions of Firms," De Economist, Springer, vol. 161(4), pages 421-446, December.
    • Handle: RePEc:kap:decono:v:161:y:2013:i:4:p:421-446
    DOI: 10.1007/s10645-013-9215-3
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    3. Yu Chen & Zhigang Li & Zheng Liu, 2018. "Agglomeration and actual tax rates: firm-level evidence from China," Regional Studies, Taylor & Francis Journals, vol. 52(1), pages 93-104, January.
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    More about this item

    Keywords

    Taxes; Agglomeration rents; Location decisions; Interaction terms in non-linear models; H71; F21; R30;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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