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Remy Oddou
''Firms location and sorting''
( 2015, Vol. 35 No.3 )
This paper analyses the effect of local taxation and local public goods on the localization and the sorting of freely mobile firms. Firms use two production factors: capital and labour. A local public good can be used as a partial substitute for capital. We consider a production function la Cobb-Douglas, the parameters of which differ from one firm to another. Local public goods are financed through two different local corporate taxation schemes that are simultaneously considered: a tax based on the capital asset value and a tax on benefit. We find that firms will self-sort themselves with respect to a parameter that is close to the capital intensity. Among firms with the same returns to scale, the more capitalistic a firm is, the more willing it will be to set in a jurisdiction with a high tax rate and an important amount of public good.
Keywords: Jurisdictions ; Location ; Local corporate taxation ; Sorting
JEL: D2 - Production and Organizations: General
H3 - Fiscal Policies and Behavior of Economic Agents: General
Manuscript Received : Jun 07 2015 Manuscript Accepted : Aug 21 2015

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