Tax Reform, Delocation and Heterogeneous Firms

32 Pages Posted: 30 Jun 2009 Last revised: 14 Mar 2010

See all articles by Richard Baldwin

Richard Baldwin

National Bureau of Economic Research (NBER)

Toshihiro Okubo

University of Geneva - Graduate Institute of International Studies (HEI)

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Date Written: June 2009

Abstract

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.

Suggested Citation

Baldwin, Richard and Okubo, Toshihiro, Tax Reform, Delocation and Heterogeneous Firms (June 2009). NBER Working Paper No. w15109, Available at SSRN: https://ssrn.com/abstract=1426460

Richard Baldwin (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Toshihiro Okubo

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5900 (Phone)

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