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Moreover, since most of the headquarters employees transferred from Seattle, few new jobs were created. In stark contrast, Chicago allowed a large local candy manufacturer employing nearly 1,000 people to leave the city without offering it tax incentives to stay. Garcia-Mila and McGuire suggest that Chicago planners believed that a management-oriented firm like Boeing would create greater potential for knowledge spillovers than would the retention of the manufacturing facility. Amazing believe in bigfoot squat ching through the snow ugly christmas sweaterThe authors conclude that agglomeration of capital may have sufficient economic as well as political payoffs to justify firm-specific tax incentives. In their contribution to the conference, Teresa Garcia-Mila of the Universitat Pompeu Fabra in Spain and Therese McGuire of the Institute of Government and Public Affairs at the University of Illinois challenge the conventional wisdom. They develop a model in which cities compete for a mobile capital stock and benefit from productivity-enhancing agglomeration economies. Under these circumstances, the efficient tax rates on new firms equals the difference between the marginal benefit to firms of the public services they consume and the marginal agglomeration benefits to the city of the additional capital brought by the firm. Consolidation might still raise aggregate welfare, if mergers benefit poor voters more than they harm wealthier ones.
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