Tax reform, delocation and heterogeneous firms
The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important thus allowing 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 which flattens the tax-firm-size profile can raise tax revenue without inducing any relocation.
We thank three anonymous referees and seminar participants at CES-Ifo and Kobe for helpful comments and suggestions, and Dany Jaimovich and Pierre-Louis Vézina for editorial assistance. The first draft was written in 2005 while Okubo was a PhD student at the Graduate Institute supported by NSF Grant No. 100012-105675. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Richard Baldwin & Toshihiro Okubo, 2009. "Tax Reform, Delocation, and Heterogeneous Firms," Scandinavian Journal of Economics, Blackwell Publishing, vol. 111(4), pages 741-764, December. citation courtesy of