Do Governments Tax Agglomeration Rents?

Hyun-Ju Koh (hyunju.koh@lrz.uni-muenchen.de) and Nadine Riedel
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Hyun-Ju Koh: University of Munich,

No 1004, Working Papers from Oxford University Centre for Business Taxation

Abstract: Using the German local business tax as a testing ground, we empirically investigate the impact of firm agglomeration on municipal tax setting behavior. The analysis exploits a rich data source on the population of German firms to construct detailed measures for the communities' agglomeration characteristics. The findings indicate that urbanization and localization economies exert a positive impact on the jurisdictional tax rate choice which confirms predictions of the theoretical New Economic Geography (NEG) literature. Further analysis suggests a qualification of the NEG argument by showing 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: 2010
New Economics Papers: this item is included in nep-acc, nep-geo, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Do governments tax agglomeration rents? (2013)
Working Paper: Do Governments Tax Agglomeration Rents? (2010)
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