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Empirical Assessment of the Existence of Taxable Agglomeration Rents

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Author Info
Souleymane COULIBALY

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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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Publisher 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
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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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Related research
Keywords: agglomeration rents; tax competition; potential of neighboring firms;

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Find related papers by JEL classification:
C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
H2 - Public Economics - - Taxation, Subsidies, and Revenue
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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  6. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June. [Downloadable!] (restricted)
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  11. Feld, Lars P. & Kirchgassner, Gebhard, 2001. "Income tax competition at the State and Local Level in Switzerland," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 181-213, April. [Downloadable!] (restricted)
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  12. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September. [Downloadable!] (restricted)
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