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Tax reform, delocation and heterogeneous firms

Listed author(s):
  • Richard Baldwin
  • Toshihiro Okubo

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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File URL: http://www.nber.org/papers/w15109.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15109.

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Date of creation: Jun 2009
Publication status: published as Richard Baldwin & Toshihiro Okubo, 2009. "Tax Reform, Delocation, and Heterogeneous Firms," Scandinavian Journal of Economics, Blackwell Publishing, vol. 111(4), pages 741-764, December.
Handle: RePEc:nbr:nberwo:15109
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  1. 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.
  2. Burbidge, John & Cuff, Katherine & Leach, John, 2006. "Tax competition with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 90(3), pages 533-549, February.
  3. Ahmed, S., 2004. "Modelling corporate tax liabilities using company accounts: a new framework," Cambridge Working Papers in Economics 0412, Faculty of Economics, University of Cambridge.
  4. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-325, April.
  5. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers 7/99, Norwegian School of Economics and Business Administration-.
  6. Kevin Holland, 1998. "Accounting Policy Choice: The Relationship Between Corporate Tax Burdens and Company Size," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(3&4), pages 265-288.
  7. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
  8. Hylke Vandenbussche & Karen Crabbé & Boudewijn Janssen, 2005. "Is there Regional Tax Competition? Firm Level Evidence for Belgium," De Economist, Springer, vol. 153(3), pages 257-276, 09.
  9. Baldwin, Richard & Okubo, Toshihiro, 2006. "Agglomeration, Offshoring and Heterogenous Firms," CEPR Discussion Papers 5663, C.E.P.R. Discussion Papers.
  10. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  11. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  12. Fredrik Andersson & Rikard Forslid, 2000. "Tax Competition and Economic Geography," Econometric Society World Congress 2000 Contributed Papers 1356, Econometric Society.
  13. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  14. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
  15. Baldwin, Richard & Krugman, Paul, 2000. "Agglomeration, Integration and Tax Harmonization," CEPR Discussion Papers 2630, C.E.P.R. Discussion Papers.
  16. Olivier P. Benon & Katherine Baer & Juan Toro R., 2002. "Improving Large Taxpayers' Compliance; A Review of Country Experience," IMF Occasional Papers 215, International Monetary Fund.
  17. 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.
  18. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
  19. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  20. 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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