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Most cities enjoy some autonomy over how they tax their residents, and that autonomy is typically exercised by multiple municipal governments within a given city. In this chapter, we document patterns of city-level taxation across countries, and we review the literature on a number of salient features affecting local tax setting in an urban context. Urban local governments on average raise some ten percent of total tax revenue in OECD countries and around half that share in non-OECD countries. We show that most cities are highly fragmented: urban areas with more than 500,000 inhabitants are divided into 74 local jurisdictions on average. The vast majority of these cities are characterized by a central municipality that strongly dominates the remaining jurisdictions in terms of population. These empirical regularities imply that an analysis of urban taxation needs to take account of three particular features: interdependence among tax-setting authorities (horizontally and vertically), jurisdictional size asymmetries, and the potential for agglomeration economies. We survey the relevant theoretical and empirical literatures, focusing in particular on models of asymmetric tax competition, of taxation and income sorting and of taxation in the presence of agglomeration rents.

This article examines the location of manufacturing industries in the European Union. It draws on intra-industry trade measures for 1961-90 and on sectoral employment data by countries and regions. The analysis of employment data suggests that EU industry has become increasingly localized in the 1980s. Increasing-returns industries are strongly concentrated at the economic core of the EU and display low levels of intra-industry trade. High-tech industries are also strongly localized, but show no centre-periphery gradient and no specific pattern of intra-industry trade. The main potential for future specialization appears to remain in sectors sensitive to labour costs, which are still relatively dispersed and have high levels of intra-industry trade. Employment in these industries is shifting towards the EU periphery. 'Neoclassical' determinants of international specialization are thus likely to dominate the ongoing adjustment process in EU manufacturing. (Journal of Common Market Studies / FUB)

We study how industry-level agglomeration economies affect government policy. Using administrative data on firm subsidies in economically lagging regions of Great Britain, we contrast two alternative hypotheses. Economic geography models imply that firms at an industry's core can sustain higher tax burdens or require lower subsidies than firms in more remote locations. Conversely, political economy models predict firms at the industry's core to be more successful at lobbying government, particularly at the subnational level, thus obtaining more favourable fiscal treatment. Our evidence suggests that local government agencies structure subsidy offers to favour pre-existing employment in locally agglomerated industries, behaviour more in line with theories of policy capture than with economic geography models. Grants administered by central government agencies, however, conform more strongly with the predictions of economic geography models.

Decentralized fiscal decision making is more likely to be optimal if regional tax bases are non-rival, in the sense that one region's gain is no other relevant region's loss. We develop a method for estimating the rivalness of tax bases using the underlying structures of the conditional logit, Poisson and nested logit models. We use this method to estimate the effect of state-level capital taxation on U.S. inward foreign direct investment. While the results are rather noisy, the assumption of perfect non-rivalenss can in some cases be rejected, but the assumption of perfect rivalness cannot. Competition over FDI across U.S. states may well be a zero-sum game.

AbstractWe analyse the internal spatial wage and employment structures of the Czech Republic, Hungary, Poland, Slovakia and Slovenia, using regional data for 1996–2000. A new economic geography model predicts wage gradients and specialization patterns that are smoothly related to the regions' relative market access. As an alternative, we formulate a 'Comecon hypothesis', according to which wages and sectoral location are not systematically related to market access except for discrete concentrations in capital regions. Estimations support both the NEG (new economic geography) prediction and the Comecon hypothesis. However, when we compare internal wage and employment gradients of the five new member states with those of Western European countries, we find that the former are marked by significantly stronger discrete concentrations of wages and service employment in their capital regions, confirming the ongoing relevance of the Comecon hypothesis.

Using entropy indices and associated bootstrap tests, we describe the distribution of economic sectors across Western European regions over the 1975-2000 period. We decompose geographic concentration into its within-country and between-country components. In addition, we estimate centre-periphery gradients in sectoral location patterns and the impact of EU membership on countries' internal geography. It is found that manufacturing has become gradually more concentrated, although the locational bias towards central regions has become weaker. Conversely, market services have been relocating towards centrally located regions. EU integration appears to have strengthened countries' internal concentration trends.