De Economist

, Volume 161, Issue 4, pp 421–446 | Cite as

Taxes, Agglomeration Rents and Location Decisions of Firms



The goal of this paper is to analyze the individual impact of tax rates and agglomeration rents as well as their interaction on location decisions of manufacturing firms within Belgium. Theoretically, both location determinants may weaken each other’s impact. Using a unique 10-year dataset concerning the number of newly setup manufacturing firms at the sector level for 43 Belgian districts, we show that local effective tax rates have a negative impact on location decisions. Moreover, location-specific supply-side agglomeration rents attract new firms and their impact appears to be even stronger for more spatially concentrated sectors. Finally, we show that a higher effective tax rate in a district does not necessarily deter new firms in more agglomerated districts, pointing to the existence of taxable location-specific agglomeration rents.


Taxes Agglomeration rents Location decisions  Interaction terms in non-linear models 

JEL Classification

H71 F21 R30 



We would like to thank Marius Brülhart, Kurt Schmidheiny, Ron Davies, Damiaan Persyn, Stefan Van Parys and participants at the ETSG conferences, VWEC 2010, a 2010 LICOS seminar and the Workshop on Recent Issues in Economic Geography in 2010 in Leuven for useful discussions and comments.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.KU Leuven|Thomas More AntwerpAntwerpBelgium
  2. 2.HU BrusselBrusselsBelgium
  3. 3.KU LeuvenLeuvenBelgium

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