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Tax reform, delocation and heterogeneous firms

  • 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
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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
Note: ITI
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  1. Crabbé, Karen & Janssen, Boudewijn & Vandenbussche, Hylke, 2004. "Is There Regional Tax Competition? Firm Level Evidence for Belgium," CEPR Discussion Papers 4721, C.E.P.R. Discussion Papers.
  2. Ludema, Rodney D & Wooton, Ian, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," CEPR Discussion Papers 1822, C.E.P.R. Discussion Papers.
  3. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
  4. Haufler, Andreas & Schjelderup, Guttorm, 2000. "Corporate Tax Systems and Cross Country Profit Shifting," Oxford Economic Papers, Oxford University Press, vol. 52(2), pages 306-25, April.
  5. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
  6. Fredrik Andersson & Rikard Forslid, 2003. "Tax Competition and Economic Geography," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 279-303, 04.
  7. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  8. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  9. Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
  10. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  11. John Burbidge & Katherine Cuff & John Leach, 2005. "Tax Competition with Heterogeneous Firms," Working Papers 05001, University of Waterloo, Department of Economics, revised Jan 2005.
  12. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  13. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2000. "Competing for Capital in a "Lumpy" World," CESifo Working Paper Series 252, CESifo Group Munich.
  14. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
  15. Baldwin, Richard & Okubo, Toshihiro, 2006. "Agglomeration, Offshoring and Heterogenous Firms," CEPR Discussion Papers 5663, C.E.P.R. Discussion Papers.
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