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Searching for thresholds in local corporate taxation: How do agglomeration economies affect?

Author

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  • Jesús López-Rodríguez
  • Diego Martínez-López
  • Brais Pociña-Sánchez

Abstract

The foot-loose capital (FC) models predict that agglomeration forces create rents for the mobile factor (capital), which can be easily taxed, and thus higher equilibrium tax rates are expected. This paper uses a highly flexible econometric specification (P-Spline spatial autoregressive model, PS-SAR) to look at the relationship between tax rates and agglomeration economies in Spain over the period 2013-2020. Our results show the existence of a minimum level of agglomeration economies that are required to find taxable agglomeration rents. This outcome calls for a reassessment of the linear FC models to disentangle which mechanisms might lead to these phenomena.

Suggested Citation

  • Jesús López-Rodríguez & Diego Martínez-López & Brais Pociña-Sánchez, 2025. "Searching for thresholds in local corporate taxation: How do agglomeration economies affect?," Working Papers 2025-02, FEDEA.
    • Handle: RePEc:fda:fdaddt:2025-02
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    References listed on IDEAS

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