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Agglomerations and Strategic Tax Competition

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  • Brian C. Hill

    (Salisbury University)

Abstract

Evidence outside the tax arena suggests that firms earn rents in the presence of agglomerations, which could lessen the mobility of firms in the agglomeration. If so, then governments might be able to extract a portion of rents from businesses through higher tax rates without as much concern about capital fleeing the jurisdiction. Strategic interaction may also be affected by the presence of agglomerations if capital mobility is affected. This article empirically examines how local governments set sales and property tax rates, while considering tax competition and one specific measure of agglomerations. Results indicate that local governments behave as strategic complements, impose higher tax rates in jurisdictions with more establishments (or urbanization economies), and are less likely to mimic other governments' tax policies if their jurisdiction is agglomerated.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 36 (2008)
Issue (Month): 6 (November)
Pages: 651-677

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Handle: RePEc:sae:pubfin:v:36:y:2008:i:6:p:651-677

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Keywords: tax competition; agglomerations; urbanization economies; strategic interaction;

References

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  17. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "Commodity taxation in a 'linear' world: a spatial panel data approach," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 35(5), pages 527-541, September.
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Cited by:
  1. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
  2. Markus Leibrecht & Claudia Hochgatterer, 2012. "Tax Competition As A Cause Of Falling Corporate Income Tax Rates: A Survey Of Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 26(4), pages 616-648, 09.

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