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JUE insight: Expectations about future tax rates and firm entry

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  • Langenmayr, Dominika
  • Simmler, Martin

Abstract

Firms should use all available information to anticipate future tax rates. Firm mobility is one source of such information. We first establish theoretically that expected future tax rates are higher in jurisdictions attractive for immobile firms (such as wind power plants or resource extracting firms). Fewer mobile firms enter in such a jurisdiction. Building on previous empirical evidence that German municipalities raise tax rates following the entry of immobile firms, we confirm that firms use this information to anticipate future tax rates. In the jurisdictions with the largest expected future tax rate increases, 10% fewer firms enter.

Suggested Citation

  • Langenmayr, Dominika & Simmler, Martin, 2024. "JUE insight: Expectations about future tax rates and firm entry," Journal of Urban Economics, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:juecon:v:142:y:2024:i:c:s0094119024000366
    DOI: 10.1016/j.jue.2024.103666
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    More about this item

    Keywords

    Corporate taxation; Firm mobility; Commitment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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