The Importance of Local Corporate Taxes in Business Location Decisions: Evidence From French Micro Data

Economic Journal, 2008, vol. 118, issue 527, pages 499-514

Abstract: Determinants of businesses locations are known to be multiple. Locations of partners and competitors are crucial, as well as the territory's local characteristics. To consider the importance of local taxes we build a Poisson model to explain the number of business creations observed in a given municipality. First results suggest that there are unobserved factors driving firm creation that are positively correlated with the level of local taxes. To deal with this potential source of endogeneity, we present an approach close to Regression Discontinuity Design. We find that, everything else being equal, higher local taxes actually tend to deter firms from setting up in a given zone but the effect is weak. Copyright © 2008 The Author(s).

Date: 2008

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