Empirical Assessment of the Existence of Taxable Agglomeration Rents

Souleymane Coulibaly ()

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: The New Economic Geography literature claims that firms are ready to pay more tax in "big markets" because of agglomeration rents. Tax authorities can thus set higher tax rates in denser economic area, hence an opposite mechanism to the "race to the bottom" process described by the classical tax competition theory. The aim of this paper is to empirically assess the existence of such agglomeration rents. We use Swiss data on municipalities corporate income tax rates and firms location to test the tax gap between these municipalities and the most peripheral one using a theory-based relation. Our estimations indicate that municipalities with higher agglomeration rents (measured as the number of firms plus the "potential of neighboring firms") are setting higher corporate income tax rates, hence confirming the existence of taxable agglomeration rents.

Keywords: agglomeration rents; tax competition; potential of neighboring firms (search for similar items in EconPapers)
JEL-codes: C4 H2 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-geo, nep-pbe and nep-ure
Date: 2008-01
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Persistent link: http://EconPapers.repec.org/RePEc:lau:crdeep:08.01

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