How Do Establishments Choose Their Location? Taxes, Monopsony, and Productivity

Catherine van der List ()
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Catherine van der List: University of Essex

No 17742, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To study the distribution of economic activity across space and place-based policies, I develop a model of the location choice of new establishments incorporating monopsonistic labor markets, taxes, and spillovers. Estimates using German administrative data indicate that establishments prefer lower taxes and lower worker outside options which enable establishments to pay lower wages. The degree to which various types of productivity spillovers matter in the location decision varies between industries. I also quantify the effects of a counterfactual place-based policy and find that the response of a commuting zone to the place-based policy depends on the degree of labor market power in that commuting zone. More monopsonistic labor markets receive more benefit from the place-based policy.

JEL-codes: H71 J23 J42 R12 (search for similar items in EconPapers)
Pages: 92 pages
Date: 2025-02
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