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Agglomeration and Local Public Finance

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PDT)

Manchester Grand Hyatt, Nautical
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Matthew Freedman, University of California-Irvine

Tales of the City: What Do Agglomeration Cases Tell Us About Agglomeration in General?

William Strange
University of Toronto
Giulia Faggio
City University of London
Olmo Silva
London School of Economics


This paper considers the heterogeneous microfoundations of agglomeration economies. It follows Ellison et al. (2010) in using the co-location of industries to look for evidence of labor pooling, input sharing, and knowledge spillovers. The novel contribution of this paper is that it estimates models for individual industries by exploiting the cross-sectional variation in how one industry co-locates with the other industries in the economy. This provides evidence on the importance of the Marshallian microfoundations at the single-industry level. Using UK data, we estimate such microfoundations models for 97 manufacturing sectors, including the classic agglomeration cases of automobiles, computers, cutlery, and textiles. These four cases – as with all of the individual industry models we estimate – clearly show the importance of the Marshallian forces. However, they also highlight how the importance of these forces varies across industries – implying that extrapolation from cases should be viewed with caution. The paper concludes with an investigation of the pattern of heterogeneity. The degree of an industry’s clustering (localization), dynamism, incumbent firm size, and worker education are shown to contribute to the pattern of heterogeneous microfoundations.

Property Tax Limits and Female Labor Supply: Evidence from the Housing Boom and Bust

Shimeng Liu
Jinan University
Xi Yang
University of North Texas


This paper investigates whether and how property tax limits impact female labor supply during the housing boom and bust. Theory predicts that property tax limits increase non-labor income during the housing boom and decrease non-labor income during the bust periods, leading to opposite effects on labor supply during the boom and bust periods. Exploiting exogenous variation of housing market conditions in the housing boom and bust and geographic changes of property tax limits in the cross-state Combined Statistical Areas, we test the theory and find that property tax limits reduced female labor force participation by 0.7 to 1.4 percentage points during the housing boom (2005-2006) as predicted. In contrast, the impact of property tax limits on female labor force participation during the housing bust (2008-2009) is always positive but not statistically significant in most specifications. These results are consistent with our model and provide new evidence of housing wealth effects in the labor market.

Identifying Agglomeration Spillovers: New Evidence from Large Plant Openings

Carlianne Patrick
Georgia State University
Mark D. Partridge
Ohio State University


Luring large industrial facilities is the primary local economic development strategy in the US and the practice is becoming more widespread throughout the developed and developing worlds. This paper uses confidential Census micro data to investigate the impact of incentivized plant openings on manufacturing activity in the same geographical area, thereby testing many of the economic theories about industrial agglomeration. We compare outcomes for plants in a county that “wins” a new plant (as reported by Site Selection and Good Jobs First) to plants in similar counties that did not to receive the new plant. With this quasi-experimental design, we test three hypotheses related to the effects of industry clustering: 1) whether the plant opening generates positive externalities for incumbent firms; 2) whether this effect differs in a non-linear way depending on the density of incumbent firms in the area; and 3) whether the higher productivity due to a new plant results in a new and permanent equilibrium in area manufacturing shares, or a transitory shock. These tests provide empirical evidence on whether policies incentivizing plant locations merit their costs as well as empirical evidence on the hypotheses central to economic theories used to justify local industrial policies. The results have been submitted for disclosure and should be available soon.

Behavioral Responses to Spatial Tax Notches in the Retail Gasoline Market

Carlos Hurtado
University of Richmond


I employ a unique dataset on fueling station locations in the United States and their corresponding retail gasoline prices to estimate how state tax discontinuities affect business location decisions and tax incidence. The analysis shows that the expected number of fueling stations on the low-tax side of a state border is between 20 and 30 percent higher than on the high-tax side. Gasoline consumers bear 75 percent of the fuel tax on the high-tax side, as compared to 100 percent on the low-tax side. The effect of the border on station location and tax incidence disappears with 15 miles of distance. These results provide some of the first estimates of the effect of tax discontinuities at borders on the location choices of retailers, their competitors, and consequences for the pass-through of taxes to prices.
Gilles Duranton
University of Pennsylvania
Kevin Mumford
Purdue University
Richard Hornbeck
University of Chicago
Thomas Holmes
University of Minnesota
JEL Classifications
  • R0 - General
  • H0 - General