Uncertainty, inter-area tax differentials, and industrial location

Empirical investigations have demonstrated that the location effects of business taxation and of inter-area tax differentials are not of major importance. This paper attempts to explain the above results by showing that the uncertainty involved in predicting future tax rates and tax differentials nullifies their location effects. It is then shown, both theoretically as well as empirically, that reducing the uncertainty of future tax benefits has a significant effect on industrial location patterns.