Tax incentives and the city
Teresa Garcia-Mila and
Therese J. McGuire
Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
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
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:631
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