Start of Main Content
Author(s)

Teresa Garcia-Mila

Therese J. McGuire

It is difficult to justify tax incentives within the existing economics literature on tax competition. We develop a model in which communities are interested in attracting firms not only for their own capital but also for the "concentration externalities," a form of agglomeration economies, their location bestows on existing firms. We find that it is efficient in this case for communities to offer tax incentives, defined as a tax rate below the benefit tax level, to firms. We present the recent relocation of the Boeing Corporation's headquarters from Seattle to Chicago as a case study.
Date Published: 2002
Citations: Garcia-Mila, Teresa, Therese J. McGuire. 2002. Tax Incentives and the City. Brookings-Wharton Papers on Urban Affairs.