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Assessing the effects of local taxation using microgeographic data

Author Info

  • Gilles Duranton
  • Laurent Gobillon
  • Henry G Overman

Abstract

We study the impact of local taxation on the location and growth of firms. Our empiricalmethodology pairs establishments across jurisdictional boundaries to estimate the impact of taxation. Our approach improves on existing work as it corrects for unobserved establishment heterogeneity, for unobserved time-varying site specific effects, and for the endogeneity of local taxation. Applied to data for English manufacturing establishments we find that local taxation has a negative impact on employment growth, but no effect on entry.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-247.

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Length: 40 pages
Date of creation: 24 Jul 2006
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-247
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Keywords: Local taxation; spatial differencing; borders; regression discontinuity;

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Find related papers by JEL classification:
  • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
  • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
  • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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  1. Gilles Duranton & Henry Overman, 2002. "Testing for Localisation Using Micro-Geographic Data," CEP Discussion Papers dp0540, Centre for Economic Performance, LSE.
  2. Epple, Dennis & Nechyba, Thomas, 2004. "Fiscal decentralization," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 55, pages 2423-2480 Elsevier.
  3. Fujita,Masahisa, 1989. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521346627, November.
  4. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  5. Kahn, Matthew E., 2004. "Domestic pollution havens: evidence from cancer deaths in border counties," Journal of Urban Economics, Elsevier, vol. 56(1), pages 51-69, July.
  6. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 577-599.
  7. Steve Bond & Kevin Denny & John Hall & William McClusky, 1996. "Who pays business rates?," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 19-35, February.
  8. Berman, E. & Bui, L.T., 1997. "Environmental Regulation and Labor demand: Evidence from the South Coast Air Basin," Papers 82, Boston University - Industry Studies Programme.
  9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  10. Bob Thompson & Sotiris Tsolacos, 2001. "Industrial Land Values — A Guide to Future Markets?," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 55-76.
  11. Paulo Guimaraes & Octavio Figueiredo & Douglas Woodward, 2000. "A tractable approach to the firm location decision problem," NIMA Working Papers 2, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
  12. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August.
  13. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles 03-91, W.E. Upjohn Institute for Employment Research.
  14. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  15. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  16. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, November.
  17. Gibbons, Steve & Machin, Stephen, 2003. "Valuing English primary schools," Journal of Urban Economics, Elsevier, vol. 53(2), pages 197-219, March.
  18. Paulo Guimaraes & Octávio Figueiredo & Douglas Woodward, 2004. "Industrial Location Modeling: Extending the Random Utility Framework," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 1-20.
  19. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper 9729, Federal Reserve Bank of New York.
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