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How Do Establishments Choose Their Location? Taxes, Monopsony, and Productivity

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  • van der List, Catherine

    (University of Essex)

Abstract

To study the distribution of economic activity across space and place-based policies, I develop a model of the location choice of new establishments incorporating monopsonistic labor markets, taxes, and spillovers. Estimates using German administrative data indicate that establishments prefer lower taxes and lower worker outside options which enable establishments to pay lower wages. The degree to which various types of productivity spillovers matter in the location decision varies between industries. I also quantify the effects of a counterfactual place-based policy and find that the response of a commuting zone to the place-based policy depends on the degree of labor market power in that commuting zone. More monopsonistic labor markets receive more benefit from the place-based policy.

Suggested Citation

  • van der List, Catherine, 2025. "How Do Establishments Choose Their Location? Taxes, Monopsony, and Productivity," IZA Discussion Papers 17742, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17742
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    More about this item

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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