Taxes and Agglomeration Economies: How Are They Related to Nonprofit Firm Location?

Abstract

For‐profit studies have investigated the effect of taxes and agglomeration economies on individual firm location, but these factors have been largely overlooked for nonprofit institutions. I use firm‐level data to investigate how corporate income, property, sales, and individual taxes and the presence of existing nonprofits are associated with location decisions. I find some evidence that nonprofits are more likely to locate in high tax states. In particular, nonprofits dependent on mission‐related revenues are more responsive to corporate property taxes. My results also show that nonprofits are more likely to locate in high individual tax states and donation‐based nonprofits are more sensitive to individual tax rates. The results suggest the presence of within industry agglomeration, but the relation is nonlinear. The first‐order effect is positive while the second‐order effect is negative. I also find some evidence that outside industry concentration and nonprofit location are negatively related.