Tax Reform, Delocation, and Heterogeneous Firms

24 Pages Posted: 15 Dec 2009

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: 2009

Abstract

The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important, enabling 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 that 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 (2009). Scandinavian Journal of Economics, Vol. 111, Issue 4, pp. 741-764, December 2009, Available at SSRN: https://ssrn.com/abstract=1521828 or http://dx.doi.org/10.1111/j.1467-9442.2009.01582.x

Richard Baldwin

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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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