The Effect of Tax Laws and the Cost of Capital on the Size of Newly Constructed Strip Shopping Centers

While the impact of tax policy and other economic variables on the total amount of construction has been widely studied, this article proposes that these variables also affect the size distribution of the properties constructed. The basic intuition is that there is a lower bound to the economically feasible size of a project due to economies of scale in construction. Events favorable to construction, such as lower interest rates and more favorable tax treatment, relax this lower bound permitting the construction of smaller properties. This proposition is tested using data on newly constructed neighborhood shopping centers in Clark County, Nevada from 1971 to 1999.