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Tax Reform, Delocation, and Heterogeneous Firms *
Author(s) -
Baldwin Richard,
Okubo Toshihiro
Publication year - 2009
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2009.01582.x
Subject(s) - relocation , economies of agglomeration , economics , monetary economics , revenue , tax reform , tax revenue , microeconomics , international economics , public economics , finance , computer science , programming language
Abstract The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important, enabling us to study the relocation effects of taxes that vary according to firm size. We show that allowing for heterogeneity permits a given tax scheme to have an endogenously different effect on the location decision of small and big firms, with the biggest firms being endogenously more likely to relocate in reaction to high taxes. We show that a reform that flattens the tax–firm–size profile can raise tax revenue without inducing any relocation.