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Is agglomeration taxable?

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  • Jordi Jofre-Monseny

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    (University of Barcelona & IEB)

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    Abstract

    Several theoretical papers that examine tax competition with agglomeration effects have stressed the possibility that the governments of jurisdictions in which economic activity is concentrated may tax firms more heavily (taxable agglomeration rents). In this paper, we examine the tax rate setting decisions taken with regard to the Spanish municipal business tax (Impuesto sobre Actividades Económicas). The analysis, carried out with a sample of 2,772 municipalities, focuses on the effect that urbanization economies, localization economies and the market potential of municipalities have on their business tax rates. High urbanization economies and high localization economies are found to increase the business tax rate. Although the evidence is weaker, the results also indicate that municipalities with better access to demand (of consumers) set higher tax rates

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    Bibliographic Info

    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/15.

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    Length: 37 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:ieb:wpaper:2010/4/doc2010-15

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    Keywords: Local taxes; agglomeration economies; tax competition;

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    22. Sylvie Charlot & Sonia Paty, 2007. "Market access effect and local tax setting: evidence from French panel data," Journal of Economic Geography, Oxford University Press, vol. 7(3), pages 247-263, May.
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