Local Taxes and Industrial Location

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Abstract
A model is developed which focuses on the relationship between fiscal variables and industrial location. Industrial location decisions are hypothesized to be made within a system of supply and demand. On the supply side, communities determine the optimal level of industrial activity based on a trade-off between tax revenues and the local environment. Firms choose between sites so as to minimize costs. The marginal prices of education and environment faced by communities are derived, and from these we get a supply of industrial sites equation which reveals how much industry a given community would be willing to accept. One conclusion is that the community's behavior in the setting of tax rates, business services, and zoning can have significant impacts on the location of industry. Another result is that the property tax is not an excess burden, but allows efficient market principles to be applied to the location of industry.

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