research notes and comments: The impact of revenue-neutral tax policy on plant location under price uncertainty

Chiou-nan Yeh, Sontachai Suwanakul and Chao-cheng Mai
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Chiou-nan Yeh: Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA
Sontachai Suwanakul: Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA
Chao-cheng Mai: Department of Business Administration, Alabama State University, Montgomery, Alabama 36101, USA

Papers in Regional Science, 2000, vol. 79, issue 1, 91-100

Abstract: This research note incorporates price uncertainty into a production- location model and examines the impacts of a revenue-neutral tax policy on production and location decisions. In particular, it is shown that under an assumption of decreasing absolute risk aversion, a revenue-neutral rise in the marginal tax rate increases the firm's output and causes the firm to move its plant closer to (away from) the market center provided that the production function exhibits increasing (decreasing) returns to scale. Nevertheless, the plant location remains unchanged as a result of a revenue-neutral tax policy if the production function is constant returns to scale. A comparison between revenue-neutral and income or lump-sum taxes and hence some important policy implications are also provided in the analysis.

Keywords: Revenue-neutral; plant location; price uncertainty; absolute risk aversion (search for similar items in EconPapers)
Date: 2000-02-02
Note: Received: 1 March 1997
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