JUE insight: Expectations about future tax rates and firm entry

Dominika Langenmayr and Martin Simmler

Journal of Urban Economics, 2024, vol. 142, issue C

Abstract: Firms should use all available information to anticipate future tax rates. Firm mobility is one source of such information. We first establish theoretically that expected future tax rates are higher in jurisdictions attractive for immobile firms (such as wind power plants or resource extracting firms). Fewer mobile firms enter in such a jurisdiction. Building on previous empirical evidence that German municipalities raise tax rates following the entry of immobile firms, we confirm that firms use this information to anticipate future tax rates. In the jurisdictions with the largest expected future tax rate increases, 10% fewer firms enter.

Keywords: Corporate taxation; Firm mobility; Commitment (search for similar items in EconPapers)
JEL-codes: D84 H25 H71 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:142:y:2024:i:c:s0094119024000366

DOI: 10.1016/j.jue.2024.103666

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