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

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.