English, Article, Journal or magazine article edition: Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials? Marius Brülhart; Mario Jametti; Kurt Schmidheiny

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Bookmark: http://trove.nla.gov.au/version/154833
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?
Author
  • Marius Brülhart
  • Mario Jametti
  • Kurt Schmidheiny
Physical Description
  • preprint
Notes
  • RePEc:lau:crdeep:07.13
  • Low corporate taxes can help attract new firms. This is the main mechanism underpinning the standard race-to-the-bottom view of tax competition. A recent theoretical literature has qualified this view by formalizing the argument that agglomeration forces can reduce firms' sensitivity to tax differentials across locations. We test this proposition using data on firm startups across Swiss municipalities. We found that, on average, high corporate income taxes do deter new firms, but that this relationship is significantly weaker in the most spatially concentrated sectors. Location choices of firms in sectors with an agglomeration intensity at the twentieth percentile of the sample distribution are estimated to be twice as responsive to a given difference in local corporate tax burdens as firms in sectors with an agglomeration intensity at the eightieth percentile. Hence, our analysis confirms the theoretical prediction: agglomeration economies can neutralize the impact of tax differentials on firms' location choices.
  • RePEc:yca:wpaper:2007_9
  • Low corporate taxes can help attract new firms. This is the main mechanism underpinning the standard 'race-to-the-bottom'view of tax competition. A recent theoretical literature has qualified this view by formalizing the argument that agglomeration forces can reduce firms' sensitivity to tax differentials across locations. We test this proposition using data on firm startups across Swiss municipalities. We find that, on average, high corporate income taxes do deter new firms, but that this relationship is significantly weaker in the most spatially concentrated sectors. Location choices of firms in sectors with an agglomeration intensity at the twentieth percentile of the sample distribution are estimated to be twice as responsive to a given difference in local corporate tax burdens as firms in sectors with an agglomeration intensity at the eightieth percentile. Hence, our analysis confirms the theoretical prediction: agglomeration economies can neutralize the impact of tax differentials on firms' location choices.
  • Firm location, agglomeration economies, local taxation, count models, Switzerland
  • RePEc:upf:upfgen:1062
Language
  • English
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