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Tax incentives and the city
Garcia-Milà, Teresa; McGuire, Therese J.
Universitat Pompeu Fabra. Departament d'Economia i Empresa
It is difficult to justify tax incentives within the existing economicsliterature on tax competition. We develop a model in which communitiesare interested in attracting firms not only for their own capital butalso for the concentration externalities, a form of agglomerationeconomies, their location bestows on existing firms. We find that itis efficient in this case for communities to offer tax incentives,defined as a tax rate below the benefit tax level, to firms. We presentthe recent relocation of the Boeing Corporation's headquarters fromSeattle to Chicago as a case study.
2005-09-15
Macroeconomics and International Economics
tax incentives
concentration externalities
agglomeration economies
tax competition
benefit tax
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