Abstract
This paper considers the short-run and long-run spatial effects (on wages, employment, and business capital as functions of location) of a localized increase in wage tax rates. The model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs. The inclusion of land as a third input in production significantly reduces the long-run effects of a central-city wage tax on employment near the central-city boundary, as compared with a model in which labor and capital are the only two inputs. The short-run effects are significantly less than the long-run effects.
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