Competition for firms in an oligopolistic industry: The impact of economic integration

Haufler, Andreas; Wooton, Ian

doi:10.1016/j.jinteco.2009.10.002

Cited by 88 publications

(102 citation statements)

References 20 publications

(22 reference statements)

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“…These findings give support to our theoretical predictions -big cities might actually rely less on corporate taxation -which are in contrast to research which has shown that smaller countries and countries on the periphery have lower corporate tax rates than large countries or regions in the core (Baldwin and Krugman, 2004;Haufler et al, 2009;Haufler and Wooton, 2010). This discrepancy to earlier literature can be explained with some special characteristics of local tax competition.…”

supporting

confidence: 85%

“…As empirically hinterlands are typically much smaller than urban centres, our model contrasts to research which has shown that smaller countries and countries on the periphery have lower corporate tax rates than large countries or regions in the core (Baldwin and Krugman, 2004;Haufler et al, 2009;Haufler and Wooton, 2010). We then show, however, that several of our predictions coming from the sequential model are in line with stylised facts about local business tax rates in the German state of Baden-Württemberg, the same state on which our survey draws.…”

Section: Introductioncontrasting

confidence: 66%

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Tax and the City - A Theory of Local Tax Competition and Evidence for Germany

Janeba

Osterloh

2012

SSRN Journal

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:http://ftp.zew.de/pub/zew-docs/dp/dp12005.pdf Non-technical summaryIn this paper we use survey responses of mayors from cities and municipalities in the German state of Baden-Württemberg to study the "true" spatial structure of local tax competition. The size of the jurisdiction and, in particular, its economic function turn out to be the important determinants of the decision-maker's perception of the intensity of competition. In particular, respondents from urban centres perceive a much higher intensity of competition for firms with respect to competing jurisdictions which are distant or even located in other countries. Our empirical findings confirm the assumption of the empirical literature about the importance of neighbourhood competition, but it also shows that another important factor is missing. In particular, the assumption of the empirical literature that competition takes place only among neighbours is at odds with the theoretical approaches where all jurisdictions compete simultaneously. The existing standard models, however, are incapable of explaining the empirical particularities of local competition.These empirical findings motivate our sequential tax competition model which considers a rich competition structure. Essentially, we assume a number of metropolitan regions which each consist of one city centre and a number of surrounding (rural) jurisdictions.The model has two levels of competition for mobile capital: first, cities simultaneously compete for mobile capital by setting their tax policies (which can be interpreted as competition for large scale investments, such as headquarters); second, rural areas compete simultaneously for capital within their metropolitan area (which corresponds to the neighbourhood competition).We are especially interested in the effects of a rise in the number of metropolitan regions, which represents the increase in external competition, for example through globalisation, Eastern enlargement of the EU or German unification. It is shown thatsimilarly to standard models -the capital tax rates of the cities converge to zero, but they stay positive for the hinterlands. Moreover, cities are more affected by an increase in external competition than hinterlands, since they reduce capital tax rates more and shift more from mobile capital to immobile labour taxation. In contrast to existing models, our results imply that larger jurisdictions do not necessarily rely mor...

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supporting

confidence: 85%

Section: Introductioncontrasting

confidence: 66%

Tax and the City - A Theory of Local Tax Competition and Evidence for Germany

Janeba

Osterloh

2012

SSRN Journal

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“…In the following, we construct a simple theoretical model based on Haufler and Wooton (2009) to receive guidance for the specification of our empirical framework. We consider two jurisdictions i ∈ {a, b}, each inhabited by l i workers.…”

Section: A Simple Theoretical Modelmentioning

confidence: 99%

“…10 As in Haufler and Wooton(2009) we assume that the cost of transporting x are positive but sufficiently low to ensure that x ji > 0 and x ij > 0.…”

Section: Producersmentioning

confidence: 99%

“…Precisely, if a jurisdiction's agglomeration characteristics by far exceed those of its neighbor, it is extremely unattractive for mobile firms to locate in the foreign jurisdiction. Consequently, the government can set a high tax rate without triggering a firm location 12 The last term in (9) results from a location-rent effect described in detail in Haufler and Wooton (2009). The intuition behind this effect is that higher transport costs provide a shield against increased product market competition.…”

Section: Governmentsmentioning

confidence: 99%

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Do governments tax agglomeration rents?

Koh¹,

Riedel

2013

Journal of Urban Economics

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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.JEL Codes: H73, R12

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Vertical transfers and tax competition: does trade integration matter?

Madiès

Taugourdeau

2020

Soc Choice Welf

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Our paper presents a model of decentralized leadership with fiscal equalization and imperfect trade liberalization. The degree of trade integration (reflected by trade costs) turns out to have an effect on both state corporate taxes and ex-post vertical equalization transfers. Our main results are the following: when public goods are highly valued by the citizens of the federation, ex post equalization transfers are welfare enhancing compared to tax competition, whatever the degree of trade integration. However, when citizens do not have strong preferences for the public good, ex post vertical transfers turn out to be welfare deterioring for low levels of trade integration while they are welfare improving compared to tax competition when trade integration is sufficiently deep.

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Competition for firms in an oligopolistic industry: The impact of economic integration

Cited by 88 publications

References 20 publications

Tax and the City - A Theory of Local Tax Competition and Evidence for Germany

Tax and the City - A Theory of Local Tax Competition and Evidence for Germany

Do governments tax agglomeration rents?

Vertical transfers and tax competition: does trade integration matter?

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