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Strategic fiscal interaction across borders: Evidence from French and German local governments along the Rhine Valley

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Author Info

  • Cassette, Aurélie
  • Di Porto, Edoardo
  • Foremny, Dirk

Abstract

This article contributes to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments across national borders. We use panel data for the French and German municipalities in the Rhine Valley for the period 2000–2007. The local governments of each country influence firms’ overall tax burdens, but the tax instruments available at the local level differ. We estimate panel models that distinguish between the effects of competing municipalities belonging to the same country and belonging to the other country. Our empirical model shows that local jurisdictions along borders choose their business tax rates based on those of their domestic neighbors and that foreign fiscal policy does not have an impact on the local domestic tax setting behavior in these contexts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 72 (2012)
Issue (Month): 1 ()
Pages: 17-30

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Handle: RePEc:eee:juecon:v:72:y:2012:i:1:p:17-30

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Fiscal interactions; Tax competition; Spatial econometrics; Fiscal federalism;

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References

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Citations

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Cited by:
  1. Edoardo di Porto & Vincent Merlin & Sonia Paty, 2013. "Cooperation among local governments to deliver public services : a “structural” bivariate response model with fixed effects and endogenous covariate," Working Papers 1304, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Reingewertz, Yaniv, 2012. "Do municipal amalgamations work? Evidence from municipalities in Israel," Journal of Urban Economics, Elsevier, vol. 72(2), pages 240-251.
  3. Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-113, Social Science Research Center Berlin (WZB).

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