Firm mobility and jurisdictions’ tax rate choices: Evidence from immobile firm entry

Dominika Langenmayr and Martin Simmler

Journal of Public Economics, 2021, vol. 204, issue C

Abstract: Capital mobility is one of the key determinants of corporate tax rates. We first show theoretically that governments will set higher tax rates on firm profits after an immobile firm has entered. We then test this prediction in a well-identified setting, using the rapid growth of wind power plants (a very immobile industry) and the large variation in local business taxes across Germany for identification. We confirm that municipalities increase corporate tax rates by up to 24% after immobile firm entry. The effect is stronger when immobile firms make up a larger share of the overall tax base.

Keywords: Corporate taxation; Firm mobility; Tax competition (search for similar items in EconPapers)
JEL-codes: F21 H25 H71 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:204:y:2021:i:c:s0047272721001663

DOI: 10.1016/j.jpubeco.2021.104530

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