Do Governments Tax Agglomeration Rents?

Koh, Hyun-Ju and Riedel, Nadine (2010) Do Governments Tax Agglomeration Rents? Centre for Business Taxation WP 10/04.

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Using the German local business tax as a testing ground, we empirically investigate the impact of firm agglomeration on municipal tax setting behavior. The analysis exploits a rich data source on the population of German firms to construct detailed measures for the communities' agglomeration characteristics. The findings indicate that urbanization and localization economies exert a positive impact on the jurisdictional tax rate choice which confirms predictions of the theoretical New Economic Geography (NEG) literature. Further analysis suggests a qualification of the NEG argument by showing that a municipality's potential to tax agglomeration rents depends on its firm and industry agglomeration relative to neighboring communities. To account for potential endogeneity problems, our analysis exploits long-lagged population and infrastructure variables as instruments for the agglomeration measures.

Item Type: Other Working Paper
Keywords: agglomeration rents, corporate taxation, regional differentiation
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 25 Apr 2012 11:52
Last Modified: 15 Oct 2015 02:18

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