IDEAS home Printed from https://ideas.repec.org/p/ieb/wpaper/doc2010-15.html
   My bibliography  Save this paper

Is agglomeration taxable?

Author

Listed:
  • Jordi Jofre-Monseny

    (University of Barcelona & IEB)

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

Suggested Citation

  • Jordi Jofre-Monseny, 2010. "Is agglomeration taxable?," Working Papers 2010/15, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-15
    as

    Download full text from publisher

    File URL: http://ieb.ub.edu/wp-content/uploads/2018/04/2010-IEB-WorkingPaper-15.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jordi Jofre-Monseny & Albert Solé-Ollé, 2008. "Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of firm location to local taxes," Working Papers 2008/4, Institut d'Economia de Barcelona (IEB).
    2. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
    3. Ottaviano, Gianmarco I.P. & van Ypersele, Tanguy, 2005. "Market size and tax competition," Journal of International Economics, Elsevier, vol. 67(1), pages 25-46, September.
    4. Stuart S. Rosenthal & William C. Strange, 2003. "Geography, Industrial Organization, and Agglomeration," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 377-393, May.
    5. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-685, May.
    6. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    7. DePeter James A. & Myers Gordon M., 1994. "Strategic Capital Tax Competition: A Pecuniary Externality and a Corrective Device," Journal of Urban Economics, Elsevier, vol. 36(1), pages 66-78, July.
    8. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, vol. 50(3), pages 647-668, April.
    9. Signe Krogstrup, 2008. "Standard Tax Competition and Increasing Returns," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 547-561, August.
    10. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
    11. Devereux, Michael P. & Griffith, Rachel & Simpson, Helen, 2007. "Firm location decisions, regional grants and agglomeration externalities," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 413-435, April.
    12. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2012. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economic Journal, Royal Economic Society, vol. 122(563), pages 1069-1093, September.
    13. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    14. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    15. Albert Solé-Ollé & Núria Bosch, 2005. "On the Relationship between Authority Size and the Costs of Providing Local Services: Lessons for the Design of Intergovernmental Transfers in Spain," Public Finance Review, , vol. 33(3), pages 343-384, May.
    16. Carlsen, Fredrik & Langset, Bjorg & Rattso, Jorn, 2005. "The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments," Journal of Urban Economics, Elsevier, vol. 58(2), pages 273-288, September.
    17. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, April.
    18. Glenn Ellison & Edward L. Glaeser & William R. Kerr, 2010. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," American Economic Review, American Economic Association, vol. 100(3), pages 1195-1213, June.
    19. Matthias Wrede, 2014. "Agglomeration, tax competition, and fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(6), pages 1012-1027, December.
    20. Miriam Hortas-Rico & Albert Solé-Ollé, 2010. "Does Urban Sprawl Increase the Costs of Providing Local Public Services? Evidence from Spanish Municipalities," Urban Studies, Urban Studies Journal Limited, vol. 47(7), pages 1513-1540, June.
    21. 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.
    22. van Soest, D.P. & Gerking, S.D. & van Oort, F.G., 2006. "Spatial impact of agglomeration externalities," Other publications TiSEM 097bdab9-500e-4474-94b3-2, Tilburg University, School of Economics and Management.
    23. 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.
    24. Hines, James R, Jr, 1996. "Altered States: Taxes and the Location of Foreign Direct Investment in America," American Economic Review, American Economic Association, vol. 86(5), pages 1076-1094, December.
    25. Jordi Jofre-Monseny & Albert Solé-Ollé, 2008. "Which Communities should be afraid of Mobility? The Effects of Agglomeration Economies on the Sensitivity of Firm Location to Local Taxes," CESifo Working Paper Series 2311, CESifo.
    26. Jordi Jofre-Monseny & Albert Solé-Ollé, 2008. "Which Communities should be afraid of Mobility? The Effects of Agglomeration Economies on the Sensitivity of Firm Location to Local Taxes," CESifo Working Paper Series 2311, CESifo Group Munich.
    27. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
    28. Guy Dumais & Glenn Ellison & Edward L. Glaeser, 2002. "Geographic Concentration As A Dynamic Process," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 193-204, May.
    29. Matthias Wrede, 2014. "Agglomeration, tax competition, and fiscal equalization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(6), pages 1012-1027, December.
    30. Daan P. Van Soest & Shelby Gerking & Frank G. Van Oort, 2006. "Spatial Impacts Of Agglomeration Externalities," Journal of Regional Science, Wiley Blackwell, vol. 46(5), pages 881-899, December.
    31. Jordi Jofre‐Monseny, 2009. "The scope of agglomeration economies: Evidence from Catalonia," Papers in Regional Science, Wiley Blackwell, vol. 88(3), pages 575-590, August.
    32. Elisabet Viladecans-Marsal, 2004. "Agglomeration economies and industrial location: city-level evidence," Journal of Economic Geography, Oxford University Press, vol. 4(5), pages 565-582, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jordi Jofre-Monseny, 2010. "Is agglomeration taxable?," Working Papers 2010/15, Institut d'Economia de Barcelona (IEB).
    2. Jofre-Monseny, Jordi & Solé-Ollé, Albert, 2012. "Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of employment location to local taxes," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 257-268.
    3. Koh, Hyun-Ju & Riedel, Nadine & Böhm, Tobias, 2013. "Do governments tax agglomeration rents?," Journal of Urban Economics, Elsevier, vol. 75(C), pages 92-106.
    4. Sandy Fréret & Denis Maguain, 2017. "The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1100-1140, December.
    5. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    6. Hyun-Ju Koh & Nadine Riedel, 2010. "Do governments tax agglomeration rents?," Working Papers 2010/21, Institut d'Economia de Barcelona (IEB).
    7. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
    8. Jordi Jofre-Monseny & Albert Solé-Ollé, 2008. "Which Communities should be afraid of Mobility? The Effects of Agglomeration Economies on the Sensitivity of Firm Location to Local Taxes," CESifo Working Paper Series 2311, CESifo.
    9. Jordi Jofre-Monseny & Albert Solé-Ollé, 2008. "Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of firm location to local taxes," Working Papers 2008/4, Institut d'Economia de Barcelona (IEB).
    10. Karen Crabbé & Karolien De Bruyne, 2013. "Taxes, Agglomeration Rents and Location Decisions of Firms," De Economist, Springer, vol. 161(4), pages 421-446, December.
    11. Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
    12. Eva Luthi & Kurt Schmidheiny, 2014. "The effect of agglomeration size on local taxes," Journal of Economic Geography, Oxford University Press, vol. 14(2), pages 265-287.
    13. Kato, Hayato, 2015. "The importance of government commitment in attracting firms: A dynamic analysis of tax competition in an agglomeration economy," European Economic Review, Elsevier, vol. 74(C), pages 57-78.
    14. Marius Brülhart & Mario Jametti & Kurt Schmidheiny, 2012. "Do agglomeration economies reduce the sensitivity of firm location to tax differentials?," Economic Journal, Royal Economic Society, vol. 122(563), pages 1069-1093, September.
    15. Marius Brülhart & Helen Simpson, 2018. "Agglomeration economies, taxable rents and government capture: evidence from a place-based policy," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 319-353.
    16. Koh, Hyun-Ju & Riedel, Nadine & Böhm, Tobias, 2013. "Do governments tax agglomeration rents?," Journal of Urban Economics, Elsevier, vol. 75(C), pages 92-106.
    17. Rainald Borck & Hyun‐Ju Koh & Michael Pflüger, 2012. "Inefficient Lock‐In And Subsidy Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1179-1204, November.
    18. Jordi Jofre-Monseny & Raquel Marín-López & Elisabet Viladecans-Marsal, 2012. "What underlies localization and urbanization economies? Evidence from the location of new firms," Working Papers 2012/9, Institut d'Economia de Barcelona (IEB).
    19. Pasquale Commendatore & Ingrid Kubin, 2016. "Source versus residence: A comparison from a new economic geography perspective," Papers in Regional Science, Wiley Blackwell, vol. 95(2), pages 201-222, June.
    20. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.

    More about this item

    Keywords

    Local taxes; agglomeration economies; tax competition;
    All these keywords.

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ieb:wpaper:doc2010-15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/iebubes.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.