Firms localisation and sorting depending on the different local tax schemes

Rémy Oddou ()
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Rémy Oddou: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper analyses the effect of local taxation and local public goods on the localization and the sorting of freely mobile firms. Firms use two production factors: capital and labour. A local public good can be used as a partial substitute for capital. We consider a production function la Cobb-Douglas, the parameters of which differ from one firm to another. Local public goods are financed through two different local corporate taxation schemes that are simultaneously considered: a tax based on the capital asset value and a tax on benefit. We find that firms will self-sort themselves with respect to a parameter that is close to the capital intensity. Among firms with the same returns to scale, the more capitalistic a firm is, the more willing it will be to set in a jurisdiction with a high tax rate and an important amount of public good.

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Date: 2016
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Published in Economics Bulletin, 2016, 35, pp.1782-1787

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01611389

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