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Title:Do governments tax agglomeration rents? PDF Logo
Authors:Koh, Hyun-Ju
Riedel, Nadine
Issue Date:2010
Series/Report no.:CESifo working paper Public Finance 2976
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.
Subjects:agglomeration rents
corporate taxation
regional differentiation
JEL:H73
R12
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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