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Agglomerations and Strategic Tax Competition

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Author Info

  • 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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Related research

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

References

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  1. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
  2. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer, vol. 1(3), pages 211-225, October.
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  4. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November.
  5. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
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  9. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  10. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
  11. Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
  12. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
  13. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  14. Per G. Fredriksson & John A. List & Daniel L. Millimet, 2003. "Chasing the Smokestack: Strategic Policymaking With Multiple Instruments," NBER Working Papers 9801, National Bureau of Economic Research, Inc.
  15. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  16. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
  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, vol. 35(5), pages 527-541, September.
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Citations

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Cited by:
  1. 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, vol. 26(4), pages 616-648, 09.
  2. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).

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