Work

Threshold effects of agglomeration on local business taxation: Evidence from Spain

Year: 2025

Type: article

Abstract: In the foot-loose capital (FC) models, it is predicted that agglomeration forces create rents for the mobile factor (capital), which can be easily taxed, and therefore higher equilibrium tax rates are expected. In this paper, a highly flexible econometric specification (P-Spline spatial autoregressive model, PS-SAR) is used to examine the relationship between tax rates and agglomeration economies in Spain over the period 2013–2020. The existence of a minimum level of agglomeration economies required for taxable agglomeration rents, in a context of non-linearities, is found. A reassessment of the linear FC models is therefore necessary in order to disentangle the mechanisms that might lead to this fact.

Source: Papers of the Regional Science Association

DOI: 10.1016/j.pirs.2025.100117

Authors: Jesús López-Rodríguez, Diego Martínez-López, Brais Pociña-Sánchez

Institutions: Universidade da Coruña, Universidade de Vigo, Fundación de Estudios de Economía Aplicada, Universidad Pablo de Olavide

Language: English

Topic: Regional Economics and Spatial Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $2,740

Funders: Instituto de Estudios Fiscales, Ministerio de Universidades