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Taxes, agglomeration rents and location decision of firms

  • Karen Crabbe
  • Karolien De Bruyne

The goal of this paper is to analyse the impact of interactions between tax rates and agglomeration rents on location decisions of firms within Belgium. In the theoretical literature it is argued that both location determinants may weaken each other’s impact. Using the number of new firms at the sector level for 43 Belgian districts, we show that local effective tax rates either have no or a negative impact on location decisions. Moreover, both types of agglomeration rents in a district are important for location decisions. The presence of firms in a district attracts new firms, while the presence of firms in the same sector deters firm entry due to competition. However, the interaction effect between taxes and agglomeration rents on firm entry is significant. We show that a higher effective tax rate in a district weakens the positive impact of the agglomeration rents on location decisions of firms.

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File URL: https://lirias.kuleuven.be/bitstream/123456789/547234/1/VIVES_DP_15_crabbe_debruyne.pdf
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Paper provided by KU Leuven, Faculty of Economics and Business, VIVES Research Centre for Regional Economics in its series Working Papers VIVES Research Centre for Regional Economics with number 15.

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Date of creation: 2011
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Handle: RePEc:ete:vivwps:15
Contact details of provider: Web page: https://feb.kuleuven.be/VIVES/vivesenglish/general/

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