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Tax reform, delocation and heterogeneous firms

  • Baldwin, Richard
  • Okubo, Toshihiro

The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important thus allowing us to study the relocation effects of taxes that vary according to firm size. We show that allowing for heterogeneity permits a given tax scheme to have an endogenously different effect on the location decision of small and big firms, with the biggest firms being endogenously more likely to relocate in reaction to high taxes. We show that a reform which flattens the tax-firm-size profile can raise tax revenue without inducing any relocation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7340.

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Date of creation: Jun 2009
Date of revision:
Handle: RePEc:cpr:ceprdp:7340
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  1. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  2. Crabbé, Karen & Janssen, Boudewijn & Vandenbussche, Hylke, 2004. "Is There Regional Tax Competition? Firm Level Evidence for Belgium," CEPR Discussion Papers 4721, C.E.P.R. Discussion Papers.
  3. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  4. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
  5. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 1999. "Competing for Capital in a 'Lumpy' World," CEPR Discussion Papers 2188, C.E.P.R. Discussion Papers.
  6. Donald R. Davis & David E. Weinstein, 1998. "Economic geography and regional production structure: an empirical investigation," Staff Reports 40, Federal Reserve Bank of New York.
  7. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
  8. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate tax systems and cross country profit shifting," Munich Reprints in Economics 20419, University of Munich, Department of Economics.
  9. Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
  10. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  11. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  12. Baldwin, Richard & Okubo, Toshihiro, 2006. "Agglomeration, Offshoring and Heterogenous Firms," CEPR Discussion Papers 5663, C.E.P.R. Discussion Papers.
  13. Fredrik Andersson & Rikard Forslid, 2000. "Tax Competition and Economic Geography," Econometric Society World Congress 2000 Contributed Papers 1356, Econometric Society.
  14. Burbidge, John & Cuff, Katherine & Leach, John, 2006. "Tax competition with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 90(3), pages 533-549, February.
  15. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
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