Tax incentives and the city

Teresa Garcia-Mila and Therese J. McGuire

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: It is difficult to justify tax incentives within the existing economics literature on tax competition. We develop a model in which communities are interested in attracting firms not only for their own capital but also for the “concentration externalities,” a form of agglomeration economies, their location bestows on existing firms. We find that it is efficient in this case for communities to offer tax incentives, defined as a tax rate below the benefit tax level, to firms. We present the recent relocation of the Boeing Corporation's headquarters from Seattle to Chicago as a case study.

Keywords: Tax incentives; concentration externalities; agglomeration economies; tax competition; benefit tax (search for similar items in EconPapers)
JEL-codes: H2 H7 R1 R2 (search for similar items in EconPapers)
Date: 2001-10, Revised 2001-12
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:631

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