Evidence outside the tax arena suggests that firms earn rents in the presence of agglomerations, which could lessen the mobility of firms in the agglomeration. If so, then governments might be able to extract a portion of rents from businesses through higher tax rates without as much concern about capital fleeing the jurisdiction. Strategic interaction may also be affected by the presence of agglomerations if capital mobility is affected. This article empirically examines how local governments set sales and property tax rates, while considering tax competition and one specific measure of agglomerations. Results indicate that local governments behave as strategic complements, impose higher tax rates in jurisdictions with more establishments (or urbanization economies), and are less likely to mimic other governments' tax policies if their jurisdiction is agglomerated.
Baldwin, Richard E., and Paul Krugman.2004. Agglomeration, integration, and tax harmonisation. European Economic Review48 (1): 1-23.
2.
Besley, Timothy, and Anne Case.1995. Incumbent behavior: Vote-seeking, tax-setting, and yardstick competition. The American Economic Review85 (1): 25-45.
3.
Bond, Eric W., and Larry Samuelson .1986. Tax holidays as signals. The American Economic Review76 (5): 820-26.
4.
Brueckner, Jan K.2003. Strategic interaction among governments: An overview of empirical studies. International Regional Science Review26 (2): 175-88.
5.
Brueckner, Jan K., and Luz A. Saavedra .2001. Do local governments engage in strategic property-tax competition?National Tax Journal54 (2): 203-29.
6.
Case, Anne C., Harvey S. Rosen, and James R. Hines , Jr.1993. Budget spillovers and fiscal policy interdependence. Journal of Public Economics52:285-307.
7.
Cline, Robert, William F. Fox, Tom Neubig, and Andrew Phillips .2004. Total state and local business taxes: A 50-state study of the taxes paid by business in fiscal 2003. State Tax Notes March 1: 737-50.
8.
Doyle, Chris, and Sweder van Wijnbergen .1994Taxation of foreign multinationals: A sequential bargaining approach to tax holidays. International Taxation and Public Finance3 (2): 211-25.
9.
Eberts, Randall W., and Daniel P. McMillen .1999. Agglomeration economies and urban public infrastructure. In Handbook of Regional and Urban Economics, Vol. 3, Edwin S. Mills and Paul Cheshire, eds. Amsterdam , New York, and Oxford: Elsevier Science Press, 1455-95.
10.
Egger, Peter, Michael Pfaffermayr, and Hannes Winner.2005. Commodity taxation in a linear world: A spatial panel data approach. Regional Science and Urban Economics35 (4): 527-41.
11.
Fletcher, Jason, and Matthew N. Murray .2006. Competition over the tax base in the state sales tax. Public Finance Review34 (3): 258-81.
12.
Fredriksson, Per G., John A. List, and Daniel L. Millimet .2004. Chasing the smokestack: Strategic policymaking with multiple instruments. Regional Science and Urban Economics34:387-410.
13.
Fredriksson, Per G., and Daniel L. Millimet .2002. Strategic interaction and the determination of environmental policy across U.S. states. Journal of Urban Economics51:101-22.
14.
Hayashi, Masayoshi, and Robin Boadway.2001. An empirical analysis of intergovernmental tax interaction: The case of business income taxes in Canada. Canadian Journal of Economics34:481-503.
15.
Heyndels, Bruno, and Jef Vuchelen .1998. Tax mimicking among Belgian municipalities. National Tax Journal51 (1): 89-101.
16.
Jacobs, Jane.1969. The Economy of Cities. London: Macmillan.
17.
Kind, Hans Jarle, Karen Helene Midelfart Knarvik , and Guttorm Schjelderup.2000. Competing for capital in a lumpy world. Journal of Public Economics78 (2): 253-74.
18.
Ludema, Rodney D., and Ian Wooton.2000. Economic geography and the fiscal effects of regional integration. Journal of International Economics52 (3): 331-57.
19.
Luna, LeAnn.2004. Local sales tax competition and the effect on county governments' tax rates and tax bases. Journal of American Taxation Association26 (1): 43-62.
20.
Marshall, Alfred.1920. Principles of Economics. New York: Macmillan.
21.
Mills, Edward S., and Bruce W. Hamilton .1994. Urban economics. New York: HarperCollins.
22.
Ring, Raymond J., Jr.1999. Producers' and consumers' share of the general sales tax. National Tax Journal52 (1): 79-90.
23.
Rork, Jonathan C.2003. Coveting thy neighbors' taxation. National Tax Journal56 (4): 775-87.
24.
Rosenthal, Stuart S., and William C. Strange .2003. Evidence on the nature and sources of agglomeration economies. In Handbook of Regional and Urban Economics, Vol. 4, J. Vernon Henderson and Jacques-François Thisse, eds. Amsterdam, New York, and Oxford: Elsevier Science Press, 2119-71.
25.
U.S. Census Bureau.2002. Census of governments. Washington, DC: U.S. Census Bureau.
26.
Wilson, John.1986. A theory of interregional tax competition. Journal of Urban Economics19 (3): 296-315.
27.
---. 1999. Theories of tax competition. National Tax Journal52 (3): 269-304.
28.
Zodrow, George R., and Peter Mieszkowski .1986. Pigou, Tiebout, property taxation, and the underprovision of local public goods. Journal of Urban Economics19 (3): 356-70.
