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The Importance of Local Corporate Taxes in Business Location Decisions: Evidence From French Micro Data

Authors


  •  We thank Didier Lefebvre for his precious work on geographical databases, as well as Stéphanie Viard and Patrick Redor for providing us with fiscal datasets. This work has also benefited from helpful comments from Didier Blanchet, Hélène Erkel-Rousse, Ross Finnie, Miren Lafourcade and Thierry Mayer and from fruitful discussions with Denis Fougère, Francis Kramarz, Claire Lelarge, Claude Picart and Sébastien Roux. We also thank the participants at the International Workshop in Spatial Econometrics and Statistics (Rome, May 2006), INSEE-DEEE seminar (Malakoff, June 2006), CEPII-DEEE seminar (Paris, January 2007), CREST-LMi (Malakoff, April 2007), Royal Economic Society Annual Conference (Warwick, April 2007), Journées de Microéconomie Appliquée (Fribourg, May 2007) and Econometric Society European Meeting (Budapest, August 2007) for their stimulating comments. We are also indebted to two anonymous referees for valuable comments that led to substantial changes in the paper. All the remaining errors are ours. Any opinions expressed here are those of the authors and not of INSEE.

Abstract

Determinants of businesses locations are known to be multiple. Locations of partners and competitors are crucial, as well as the territory's local characteristics. To consider the importance of local taxes we build a Poisson model to explain the number of business creations observed in a given municipality. First results suggest that there are unobserved factors driving firm creation that are positively correlated with the level of local taxes. To deal with this potential source of endogeneity, we present an approach close to Regression Discontinuity Design. We find that, everything else being equal, higher local taxes actually tend to deter firms from setting up in a given zone but the effect is weak.

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