Tax Incentives and the City, Brookings-Wharton Papers on Urban Affairs
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.
Teresa Garcia-Mila, Therese J. McGuire
Garcia-Mila, Teresa, and Therese J. McGuire. 2002. Tax Incentives and the City. Brookings-Wharton Papers on Urban Affairs.