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The impact of revenue‐neutral tax policy on plant location under price uncertainty *
Author(s) -
Suwanakul Sontachai,
Yeh Chiounan,
Mai Chaocheng
Publication year - 2000
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/j.1435-5597.2000.tb00761.x
Subject(s) - economics , revenue , marginal revenue , production (economics) , tax revenue , microeconomics , returns to scale , scale (ratio) , function (biology) , monetary economics , econometrics , public economics , finance , physics , quantum mechanics , evolutionary biology , biology
. This research note incorporates price uncertainty into a production‐location model and examines the impacts of a revenue‐neutral tax policy on production and location decisions. In particular, it is shown that under an assumption of decreasing absolute risk aversion, a revenue‐neutral rise in the marginal tax rate increases the firm's output and causes the firm to move its plant closer to (away from) the market center provided that the production function exhibits increasing (decreasing) returns to scale. Nevertheless, the plant location remains unchanged as a result of a revenue‐neutral tax policy if the production function is constant returns to scale. A comparison between revenue‐neutral and income or lump‐sum taxes and hence some important policy implications are also provided in the analysis.