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research notes and comments: The impact of revenue-neutral tax policy on plant location under price uncertainty

Author

Listed:
  • Chiou-nan Yeh

    (Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA)

  • Sontachai Suwanakul

    (Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA)

  • Chao-cheng Mai

    (Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA)

Abstract

This research note incorporates price uncertainty into a production- location model and examines the impacts of a revenue-neutral tax policy on production and location decisions. In particular, it is shown that under an assumption of decreasing absolute risk aversion, a revenue-neutral rise in the marginal tax rate increases the firm's output and causes the firm to move its plant closer to (away from) the market center provided that the production function exhibits increasing (decreasing) returns to scale. Nevertheless, the plant location remains unchanged as a result of a revenue-neutral tax policy if the production function is constant returns to scale. A comparison between revenue-neutral and income or lump-sum taxes and hence some important policy implications are also provided in the analysis.

Suggested Citation

  • Chiou-nan Yeh & Sontachai Suwanakul & Chao-cheng Mai, 2000. "research notes and comments: The impact of revenue-neutral tax policy on plant location under price uncertainty," Papers in Regional Science, Springer;Regional Science Association International, vol. 79(1), pages 91-100.
    • Handle: RePEc:spr:presci:v:79:y:2000:i:1:p:91-100
    Note: Received: 1 March 1997
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