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Tax Differentials and Agglomeration Economies in Intraregional Firm Location

  • Jordi Jofre Monseny
  • Alberto Sole Olle

    (Universitat de Barcelona)

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    This paper analyses empirically how differences in local taxes affect the intraregional location of new manufacturing plants. These effects are examined within the random profit maximization framework while accounting for the presence of different types of agglomeration economies (localization/ urbanization/ Jacobs economies) at the municipal level. We look at the location decision of more than 10,000 establishments locating between 1996 and 2003 across more than 400 municipalities in Catalonia, a Spanish region. It is necessary to restrict the choice set to the local labor market and, above all, to control for agglomeration economies so as to identify the effects of taxes on the location of new establishments.

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    Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 180.

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    Length: 30 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:bar:bedcje:2007180
    Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
    Web page: http://www.ere.ub.es

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    1. Gilles Duranton & Laurent Gobillon & Henry G. Overman, 2006. "Assessing the effects of local taxation using microgeographic data," LSE Research Online Documents on Economics 19840, London School of Economics and Political Science, LSE Library.
    2. Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers 1822, C.E.P.R. Discussion Papers.
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    4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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    7. Timothy J. Bartik, 1991. "The Effects of Property Taxes and Other Local Policies on the Intrametropolitan Pattern of Business Location," Book chapters authored by Upjohn Institute researchers, in: Henry W. Herzog & Alan M Schlottmann (ed.), Industry Location and Public Policy, pages 57-80 W.E. Upjohn Institute for Employment Research.
    8. Paulo Guimar�es & Octávio Figueirdo & Douglas Woodward, 2003. "A Tractable Approach to the Firm Location Decision Problem," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 201-204, February.
    9. Figueiredo, Octavio & Guimaraes, Paulo & Woodward, Douglas, 2002. "Home-field advantage: location decisions of Portuguese entrepreneurs," Journal of Urban Economics, Elsevier, vol. 52(2), pages 341-361, September.
    10. 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.
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    13. Newman, Robert J. & Sullivan, Dennis H., 1988. "Econometric analysis of business tax impacts on industrial location: What do we know, and how do we know it?," Journal of Urban Economics, Elsevier, vol. 23(2), pages 215-234, March.
    14. Gyourko, Joseph, 1987. "Effects of local tax structures on the factor intensity composition of manufacturing activity across cities," Journal of Urban Economics, Elsevier, vol. 22(2), pages 151-164, September.
    15. Albert Solé & Elisabet Viladecans Marsal, 2003. "Creación de empleo e impuestos municipales: un estudio empírico de las externalidades fiscales," Investigaciones Economicas, Fundación SEPI, vol. 27(2), pages 393-417, May.
    16. Paulo Guimaraes & Octávio Figueiredo & Douglas Woodward, 2004. "Industrial Location Modeling: Extending the Random Utility Framework," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 1-20.
    17. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    18. Erickson, Rodney A. & Wasylenko, Michael, 1980. "Firm relocation and site selection in suburban municipalities," Journal of Urban Economics, Elsevier, vol. 8(1), pages 69-85, July.
    19. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, March.
    20. Buettner, Thiess, 2003. "Tax base effects and fiscal externalities of local capital taxation: evidence from a panel of German jurisdictions," Journal of Urban Economics, Elsevier, vol. 54(1), pages 110-128, July.
    21. Bartik, Timothy J, 1985. "Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 14-22, January.
    22. 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.
    23. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
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