The Importance of Local Corporate Taxes in Business Location Decisions: Evidence from French Micro Data

Roland Rathelot

96 citations0/0 files storedThe Economic Journal

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Local Government Finance and Decentralization Regional Economics and Spatial Analysis Corporate Taxation and Avoidance

Abstract

Determinants of businesses locations are known to be multiple. Locations of partners and competitors are crucial, as well as the territory's local characteristics. To consider the importance of local taxes we build a Poisson model to explain the number of business creations observed in a given municipality. First results suggest that there are unobserved factors driving firm creation that are positively correlated with the level of local taxes. To deal with this potential source of endogeneity, we present an approach close to Regression Discontinuity Design. We find that, everything else being equal, higher local taxes actually tend to deter firms from setting up in a given zone but the effect is weak.

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2001Econometric Analysis of Cross Section and Panel Data 1991Geography and Trade 1999Do Better Schools Matter? Parental Valuation of Elementary Education 1986Pigou, Tiebout, property taxation, and the underprovision of local public goods 1996Equilibrium Locations of Vertically Linked Industries 1998The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders 2003Agglomeration, integration and tax harmonisation 1983The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables

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