Do governments tax agglomeration rents?

Koh, Hyun-Ju, Riedel, Nadine and Bohm, Tobias (2013) Do governments tax agglomeration rents? Journal of Urban Economics, 75. pp. 92-106.


Empirical evidence suggests that firms receive rents from locating in economic agglomerations and industry clusters. Using the German local business tax as a testing ground, we empirically investigate whether these agglomeration rents are taxable for local governments. The analysis exploits a rich data source on the population of German plants to construct measures for the communities’ agglomeration characteristics. The findings indicate that economic agglomerations and industry clusters exert a positive impact on the jurisdictional tax rate choice. Further analysis moreover suggests 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: Article
Keywords: Agglomeration rents; Corporate taxation; Regional differentiation
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 25 Apr 2013 09:19
Last Modified: 14 Jul 2017 10:31
Funders: Not applicable

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