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Tax interactions among Belgian municipalities: Do interregional differences matter?

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  • Gérard, Marcel
  • Jayet, Hubert
  • Paty, Sonia

Abstract

This paper tests the existence of strategic interactions among municipalities, based on a panel of Belgian local tax rates from 1985 to 2004. A special emphasis is put on the role of the interregional differences in Belgium. Our results partly confirm previous findings for Belgium suggesting that municipalities interact over the local surcharge on the (labor) income tax rate but not on the local surcharge on the property tax. Using spatial econometrics tools and an original methodology for specifying weight matrices, we find that municipalities are sensitive to the local income tax rates set by only their closest neighbors. We cannot reject the hypothesis that interregional differences matter for municipalities belonging to the Brussels region: for the local income tax rate, the intensity of interactions is shown to be higher between municipalities belonging to the Brussels region than between municipalities belonging to different regions.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 40 (2010)
Issue (Month): 5 (September)
Pages: 336-342

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Handle: RePEc:eee:regeco:v:40:y:2010:i:5:p:336-342

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Web page: http://www.elsevier.com/locate/regec

Related research

Keywords: Tax interactions Panel data Spatial econometrics Local tax rates Tax competition;

References

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  1. Giuseppe Arbia & Michele Battisti & Gianfranco Di Vaio, 2009. "Institutions and geography: Empirical test of spatial growth models for European regions," Quaderni del Dipartimento di Economia, Finanza e Statistica 72/2009, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  2. Sole Olle, Albert, 2003. "Electoral accountability and tax mimicking: the effects of electoral margins, coalition government, and ideology," European Journal of Political Economy, Elsevier, vol. 19(4), pages 685-713, November.
  3. Lars P. Feld & Emmanuelle Reulier, 2005. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," CREMA Working Paper Series 2005-19, Center for Research in Economics, Management and the Arts (CREMA).
  4. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993) 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
  5. Wildasin, D.E., 1987. "Nash equilibria in models of fiscal competition," CORE Discussion Papers 1987020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
  7. Brett, C. & Pinkse, J., 1998. "The Determinants of Municipal Tax Rates in British Columbia," UBC Departmental Archives 98-03, UBC Department of Economics.
  8. Sylvie Charlot & Sonia Paty, 2007. "Market access effect and local tax setting: evidence from French panel data," Journal of Economic Geography, Oxford University Press, vol. 7(3), pages 247-263, May.
  9. Anne Case, 1993. "Interstate tax competition after TRA86," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 136-148.
  10. Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer, vol. 12(4), pages 475-492, August.
  11. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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Citations

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Cited by:
  1. Marcel Gérard & Laurent van Malderen, 2012. "Tax Interaction among Walloon Municipalities: Is there Room for Yardstick Competition, Intellectual Trend and Partisan Monopoly Effect?," CESifo Working Paper Series 4025, CESifo Group Munich.
  2. Geys, Benny & Osterloh, Steffen, 2011. "Politicians' opinions on rivals in the competition for firms: An empirical analysis of reference points near a border," ZEW Discussion Papers 11-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Benny Geys & Federico Revelli, 2011. "Economic and political foundations of local tax structures: an empirical investigation of the tax mix of Flemish municipalities," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 29(3), pages 410-427, June.
  4. Michael Keen & Kai A. Konrad, 2012. "International Tax Competition and Coordination," Working Papers international_tax_competi, Max Planck Institute for Tax Law and Public Finance.
  5. Cassette, Aurélie & Di Porto, Edoardo & Foremny, Dirk, 2012. "Strategic fiscal interaction across borders: Evidence from French and German local governments along the Rhine Valley," Journal of Urban Economics, Elsevier, vol. 72(1), pages 17-30.
  6. Iwata, Shinichiro & Sumita, Kazuto & Fujisawa, Mieko, 2012. "Price competition in the spatial real estate market: Allies or rivals?," MPRA Paper 37438, University Library of Munich, Germany.
  7. Marie-Estelle Binet & Alain Guengant & Matthieu Leprince, 2012. "Overlapping jurisdictions and demand for local public services: does spatial heterogeneity matter?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201213, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  8. 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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