Effects and side effects: A micro-simulation study of firm location choice

This paper investigates effects of different possible options for cantonal and municipal au-thorities’ intent on attracting firms: improvements in transport infrastructure, designation of new building zones, and last but not least tax reductions. These actions have been tested by simulating the decisions of existing firms. The parameters for these simulations have been estimated with a discrete choice model using data of the commercial registers of the cantons St.Gallen and both Appenzell covering the years 1991 to 2006. The aim of this paper is to show not only the effects, but also to detect potential negative side effects.The simulation results show, that tax reductions have unrivalled large effects, meaning positive effects in the municipalities concerned as well as negative side effects in adjacent mu-nicipalities. Generally, effects are more intense in regions with a large number of firms al-ready present. Interestingly, due to large positive effects in a specific region, negative side effects can also be identified over long distances in other regions. Especially cities and towns are affected by these long distance effects