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Tax Policy, Location Choices, and Market Structure

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Author Info

  • Pfann, Gerard A.

    ()
    (Maastricht University)

  • van Kranenburg, Hans

    ()
    (Maastricht University)

Abstract

A structural model of entry and fiscal policy is presented. It shows that taxation of variable production costs can increase product prices, lower competition, and reduce the availability of new products in small markets. The model’s test is based on a unique nationwide fiscal experiment. We study the effects of the 1869 stamped paper tax reform act on the market for daily newspapers in the Netherlands. The econometric analysis uses data on when and where the newspapers existed and were introduced together with demographic census data from 1859 and 1869. The results confirm the model’s predictions and show how taxation affects strategic business location decisions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 499.

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Length: 38 pages
Date of creation: May 2002
Date of revision:
Publication status: published in: Journal of Law and Economics, 2003, 46 (1), 61-84
Handle: RePEc:iza:izadps:dp499

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Keywords: quasi-experiment; industrial organization; cities; fiscal policy;

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References

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  1. Jovanovic, B. & MacDonald, G.M., 1992. "The Life-Cycle of Competitive Industry," Papers 92-09, Rochester, Business - Financial Research and Policy Studies.
  2. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
  3. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
  4. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  5. Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
  6. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
  7. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August.
  8. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-49, August.
  9. Besley, Timothy, 1989. "Commodity taxation and imperfect competition : A note on the effects of entry," Journal of Public Economics, Elsevier, vol. 40(3), pages 359-367, December.
  10. Thomas J. Holmes, 1999. "Scale of Local Production and City Size," American Economic Review, American Economic Association, vol. 89(2), pages 317-320, May.
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Cited by:
  1. Strauss-Kahn, Vanessa, 2005. "Firms' location decision across asymmetric countries and employment inequality," European Economic Review, Elsevier, vol. 49(2), pages 299-320, February.
  2. Noailly, Joëlle & Nahuis, Richard, 2010. "Entry and competition in the Dutch notary profession," International Review of Law and Economics, Elsevier, vol. 30(2), pages 178-185, June.

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