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Taxes, Agglomeration Rents and Location Decisions of Firms

  • Crabb, Karen


    (LESSIUS Antwerpen and Catholic University of Leuven)

  • De Bruyne, Karolien


    (Hogeschool-Universiteit Brussel (HUB), Belgium)

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 others 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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Paper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2010/28.

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Length: 33 page
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:hub:wpecon:201028
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