Paper #631
- Title:
- Tax incentives and the city
- Authors:
- Teresa Garcia-MilĂ and Therese J. McGuire
- Date:
- October 2001 (Revised: December 2001)
- Abstract:
- It is difficult to justify tax incentives within the existing economics literature on tax competition. We develop a model in which communities are interested in attracting firms not only for their own capital but also for the “concentration externalities,” a form of agglomeration economies, their location bestows on existing firms. We find that it is efficient in this case for communities to offer tax incentives, defined as a tax rate below the benefit tax level, to firms. We present the recent relocation of the Boeing Corporation's headquarters from Seattle to Chicago as a case study.
- Keywords:
- Tax incentives, concentration externalities, agglomeration economies, tax competition, benefit tax
- JEL codes:
- H2, H7, R1, R2
- Area of Research:
- Macroeconomics and International Economics
- Published in:
- Brooking-Wharton Papers on Urban Affairs, 2002, pp. 95-132
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