The impact of local taxes on plants location decision

Roland Rathelot and Patrick Sillard

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: Determinants of plant locations are known to be multiple. Locations of partners and competitors are crucial, as well as the territory's local characteristics. Some local characteristics can be natural. Others, like local taxes, reflect local agents' decisions. To what extent are local taxes taken into consideration during the plant location process? We build a Poisson model to explain the number of firm creations observed in a given municipality in a given year. Correlations and first results tend to show that there exists some unobserved attractivity factors correlated with the level of local taxes. To deal with endogeneity, we present an approach close to the Regression Discontinuity Design. Finally, we find that, everything else being equal, higher local taxes actually deter firms from investing in a given zone.

Keywords: local attractivity; local taxes; plant location decisions; regression discontinuity design; Poisson regression; spatial economics (search for similar items in EconPapers)
JEL-codes: C21 C25 C33 R12 R15 (search for similar items in EconPapers)
Date: 2006
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