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Title page 1

Contents 1

Abstract 3

1. Introduction 4

2. Model and Estimating Equation 8

2.1. Allocation of Workers to Establishments Within Labor Markets 9

2.2. Optimal Establishment Behavior Within a Market 10

2.3. Modeling Location Choice 12

2.4. Estimating Equation 13

3. Data, Summary Statistics, and Variable Construction 14

3.1. Establishment Data 14

3.2. Proxies for Agglomerating Forces 15

3.3. Construction of Additional Variables for Analysis 16

4. Empirical Strategy and Results 17

4.1. Empirical Strategy 17

4.2. Results 19

4.3. Heterogeneity by AKM Establishment-Effect and Establishment Size 22

4.4. Tradability 24

4.5. Additional Results 26

5. Counterfactual Analysis: Effects of a Place-Based Policy 27

5.1. Effects of Tax Policy - Theory 27

5.2. Counterfactual Results for All Commuting Zones 29

5.3. Case Study: Effects Within a Commuting Zone 32

6. Conclusions 33

References 34

Appendix 49

A. Online Appendix 49

B. Additional Figures and Tables 71

Tables 47

Table 1. BHP Summary Statistics 47

Table 2. Overview of data 47

Table 3. Share of Establishments Within Sector by Tradability Group 48

Figures 39

Figure 1. Coefficients by Sector 39

Figure 2. Coefficients: Splitting Sample by AKM Establishment-Effect 40

Figure 3. Coefficients: Splitting Sample by Establishment Size 42

Figure 4. Effects of Counterfactual Tax Policy on Commuting Zones 44

Figure 5. Correlation of Counterfactual Results and Market Power 45

Figure 6. Effects of Counterfactual Tax Policy on Commuting Zones Allowing Movements in Market Power 46

Appendix Tables 51

Table A.2.1. Poisson Goodness of Fit Tests 51

Table A.6.1. Affect of Rental Prices 65

Table B.2.1. Correlation of Taxes Within Commuting Zone 86

Table B.2.2. Union Coverage Rates by Industrial Sector 87

Table B.2.3. Response of the Share Ratio to Taxes, Spillovers, and Outside Option 88

Table B.2.4. Response of the Share Ratio to Taxes, Spillovers, and Outside Option: Alternative Sector Definition 89

Table B.2.5. Heterogeneity of Results by AKM Establishment Effect 90

Table B.2.6. Heterogeneity of Results by Establishment Size 91

Table B.2.7. Results Excluding Market Size Control 92

Appendix Figures 50

Figure A.1.1. Elasticity of Labor Supply Across Space 50

Figure A.3.1. Bounding Exercise: Adjustment for Establishment Observation and Establishment Counts 54

Figure A.3.2. Bounding Exercise: Adjustment for Establishment Observation and Wages 55

Figure A.4.1. Input-Output Linkages Across Space, 1999 59

Figure A.4.2. Labor Linkages Across Space, 1999 60

Figure A.5.1. Imputing Union Minimum Wage Rates 62

Figure A.8.1. Bounding Exercise: Incorporating Extensive Margin Effects 69

Figure A.8.2. Bounding Exercise: Incorporating Extensive Margin Effects 70

Figure B.1.1. Prime-Age Worker Mobility Rates by Industrial Sector 71

Figure B.1.2. Average Corporate Tax Rates - Percent of Base Rate 72

Figure B.1.3/Figure B.1.4. Share of Filed Patents, 2015 73

Figure B.1.4/Figure B.1.3. Geographic Distribution of Outside Option 74

Figure B.1.5. Coefficients by Sector - OLS 75

Figure B.1.6. Model Fit 76

Figure B.1.7. Illustration of Primary and Secondary Tax Policy Effects 77

Figure B.1.8. Correlation of Counterfactual Establishment and Wage Effects 78

Figure B.1.9. Share of Counterfactual Wage Changes from Outside Option Changes 79

Figure B.1.10. Effects of Counterfactual Tax Policy on Commuting Zones in a More Perfectly Competitive World 80

Figure B.1.11. Relationship Between Unemployment Rates and Counter-factual Establishment Growth 81

Figure B.1.12. Commuting Zones in Case Study 82

Figure B.1.13. Case Study: Change in Establishment Counts 83

Figure B.1.14. Case Study: Change in Establishment Counts by Industrial Sector 84

Figure B.1.15. Case Study: Change in Wages 85