Do governments tax agglomeration rents?

Hyun-Ju Koh, Nadine Riedel and Tobias Böhm

Journal of Urban Economics, 2013, vol. 75, issue C, 92-106

Abstract: Empirical evidence suggests that firms receive rents from locating in economic agglomerations and industry clusters. Using the German local business tax as a testing ground, we empirically investigate whether these agglomeration rents are taxable for local governments. The analysis exploits a rich data source on the population of German plants to construct measures for the communities’ agglomeration characteristics. The findings indicate that economic agglomerations and industry clusters exert a positive impact on the jurisdictional tax rate choice. Further analysis moreover suggests that a municipality’s potential to tax agglomeration rents depends on its firm and industry agglomeration relative to neighboring communities. To account for potential endogeneity problems, our analysis exploits long-lagged population and infrastructure variables as instruments for the agglomeration measures.

Keywords: Agglomeration rents; Corporate taxation; Regional differentiation (search for similar items in EconPapers)
JEL-codes: H73 R12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Do Governments Tax Agglomeration Rents? (2010)
Working Paper: Do Governments Tax Agglomeration Rents? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:75:y:2013:i:c:p:92-106

DOI: 10.1016/j.jue.2012.11.004

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