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Empirical Assessment of the Existence of Taxable Agglomeration Rents

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  • Souleymane COULIBALY

Abstract

The New Economic Geography literature claims that firms are ready to pay more tax in "big markets" because of agglomeration rents. Tax authorities can thus set higher tax rates in denser economic area, hence an opposite mechanism to the "race to the bottom" process described by the classical tax competition theory. The aim of this paper is to empirically assess the existence of such agglomeration rents. We use Swiss data on municipalities corporate income tax rates and firms location to test the tax gap between these municipalities and the most peripheral one using a theory-based relation. Our estimations indicate that municipalities with higher agglomeration rents (measured as the number of firms plus the "potential of neighboring firms") are setting higher corporate income tax rates, hence confirming the existence of taxable agglomeration rents.

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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 08.01.

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Length: 33 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:lau:crdeep:08.01

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
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Fax: ++41 21 692.33.05
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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Keywords: agglomeration rents; tax competition; potential of neighboring firms;

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  1. 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.
  2. Borck, Rainald & Pfluger, Michael, 2006. "Agglomeration and tax competition," European Economic Review, Elsevier, vol. 50(3), pages 647-668, April.
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  8. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers 7/99, Norwegian School of Economics and Business Administration-.
  9. Lars P. Feld & Gebhard Kirchgässner, 2000. "Income Tax Competition at the State and Local Level in Switzerland," CESifo Working Paper Series 238, CESifo Group Munich.
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Cited by:
  1. Karen Crabbe & Karolien De Bruyne, 2011. "Taxes, agglomeration rents and location decision of firms," Vives discussion paper series 15, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, Vives.

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