Firms location and sorting

Remy Oddou ()
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Remy Oddou: Economix - Paris West University

Economics Bulletin, 2015, vol. 35, issue 3, 1782-1787

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.

Keywords: Jurisdictions; Location; Local corporate taxation; Sorting (search for similar items in EconPapers)
JEL-codes: D2 H3 (search for similar items in EconPapers)
Date: 2015-08-21
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