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Tax reform, delocation and heterogeneous firms

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  • Richard Baldwin
  • Toshihiro Okubo

Abstract

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.

Suggested Citation

  • Richard Baldwin & Toshihiro Okubo, 2009. "Tax reform, delocation and heterogeneous firms," NBER Working Papers 15109, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15109
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    More about this item

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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