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Journal of Economic Geography Advance Access published online on May 7, 2007
Journal of Economic Geography, doi:10.1093/jeg/lbm016
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© The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Market access effect and local tax setting: evidence from French panel data

Sylvie Charlot*,{dagger} and Sonia Paty**

*CESAER-INRA (UMR 1041), 26 Bld Petitjean, BP 87999, F-21079 Dijon, France.
**CESAER-INRA (UMR 1041) and EQUIPPE (University of Lille 1, France). email < sonia.paty{at}univ-lillel.fr>

{dagger}Corresponding author: Sylvie Charlot, CESAER, INRA, 26Bld Dr petitjean BP 87999, Dijon cedex 21079, France. email < charlot{at}enesad.inra.fr>

The main purpose of this article is to assess the existence of an agglomeration rent in the French local tax setting. In order to perform that test, we first describe a simple economic geography model in which the main agglomeration force at work is the ‘market access effect’. We then estimate a derived tax-setting equation using spatial panel data for the period 1993–2003. We confirm a positive and significant relationship between the tax rate and market access, which suggests there is a taxable agglomeration rent in the French municipalities. We also observe significant mimic behaviour between French localities when they choose their rate of local business tax and vertical interactions between municipalities and regions.

Keywords: New economic geography, taxable agglomeration rent, market access effect, spatial dependence, panel data,
JEL classifications: H2, H3, C23, R12
Date submitted: 8 August 2006     Date accepted: 28 March 2007


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