Which communities should be afraid of mobility? The effects of agglomeration economies on the sensitivity of employment location to local taxes

Jordi Jofre-Monseny and Albert Solé-Ollé

Regional Science and Urban Economics, 2012, vol. 42, issue 1-2, 257-268

Abstract: This paper examines the effect of agglomeration economies on the sensitivity of employment location to tax differentials. In the presence of agglomeration economies, when a firm moves into a community attracted by a tax reduction, other firms may decide to follow, implying that agglomeration economies increase tax effects. However, this result only holds when jurisdictions are relatively similar. If economic activities are concentrated in a single jurisdiction from the outset, agglomeration economies might offset tax differentials and so limit the role played by taxes. We analyze the effect of a local business tax on the location of employment in the Spanish region of Catalonia. We relate differences in the sensitivity of employment location to local taxes to differences in the Ellison and Glaeser (1997) index, an industry measure of geographical concentration. We test if agglomeration economies: (1) strengthen tax effects in dispersed local labor markets in which municipalities are relatively similar; and (2) weaken tax effects in (concentrated) local labor markets showing a marked core–periphery pattern. We find that agglomeration economies strengthen tax effects in dispersed local labor markets but neither weakens nor strengthens tax effects in concentrated local labor markets.

Keywords: Local taxes; Agglomeration economies; Tax competition; Employment location (search for similar items in EconPapers)
JEL-codes: H3 H7 R3 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016604621100113X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:42:y:2012:i:1:p:257-268

DOI: 10.1016/j.regsciurbeco.2011.08.013

Access Statistics for this article

Regional Science and Urban Economics is currently edited by D.P McMillen and Y. Zenou

More articles in Regional Science and Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().