Tax Differentials in Intraregional Firm Location: Evidence from New Manufacturing Establishments in Spanish Municipalities

Jofre-Monseny J. and Sole-Olle A. Tax differentials in intraregional firm location: evidence from new manufacturing establishments in Spanish municipalities, Regional Studies. This paper analyses empirically how differences in local taxes affect the intraregional location of new manufacturing plants. These effects are examined within the random profit maximization framework. It looks at the location decision of more than 10 000 manufacturing establishments locating between 1996 and 2003 across more than 400 municipalities in Catalonia, a Spanish region. It is found that local taxes on business and property deter new manufacturing establishments. It is necessary to restrict the choice set to the local labour market and, above all, to control for agglomeration economies to identify the effects of taxes on the location of new establishments.