Evidence of Fiscal Differentials and Intrametropolitan Firm Relocation

Abstract

significant impact on intraurban business location decisions. However, he also notes that intrametropolitan property tax differentials may equal as much as 10% of a firm's profits. In these cases, one might expect that fiscal variables would affect the intraurban location decision of firms. Oakland also suggests that most studies which have examined intraurban industry location have inappropriately treated the firm's business location decision only from the demand side. Specifically, the firm's demand for space or site choice is presumed to be unrestricted by zoning or other exclusionary practices of local governments. Recent research by Fischel (1975) and Fox (1978) suggests that some local governments rationally exclude firms from locating within their boundaries or supply no industry sites. They argue that residents of communities derive utility from environmental quality, public goods and private goods. The presence of industry in a jurisdiction presumably leads to more increases in tax revenues than in expenditures, and the presence of industry permits the consumption of more local public and private goods at the expense of environmental quality. Communities with stronger preferences for environmental quality will require higher ax revenues from firms or larger increases in private and public goods in order to accept losses in environmental quality. Some communities with very strong preferences for environmental quality may want to increase their property tax rate on firms to adequately compensate them for losses of environmental quality. However, since the property tax rate must be applied uniformly to residential and nonresidential property, residents are essentially constrained to trade increased public goods for losses in environmental quality and losses in private consumption. If communities find either of these tradeoffs unacceptable, then they are likely to zone very little or no land for industrial and commercial use. Thus, Oakland argues, the inclusion of communities that zoneout firms in an analysis of firm site choice ma lead to biased estimation results, especially with regard to fiscal variables. A complete analysis of the location of firms should be based on a demand for