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Strategic interaction in tax policies among states

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  • Rubén Hernández-Murillo

Abstract

Competition among governments differs in several aspects from competition among private agents, in terms of both its positive and normative implications. In this paper we test empirically for strategic interaction among U.S. states in the determination of tax rates on capital income using spatial econometric methods. We find that states have a positively sloped reaction function to the tax policies of rival states. This result has important implications for the comparative statics of the equilibrium configuration of tax rates, because changes in local exogenous variables have cascading effects into other competing states’ tax-setting policies. We also find that a state’s size has a positive effect on tax rates.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2003)
Issue (Month): May ()
Pages: 47-56

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Handle: RePEc:fip:fedlrv:y:2003:i:may:p:47-56:n:v.85no.3

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Related research

Keywords: Taxation ; State finance;

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Cited by:
  1. Yihua Yu & Li Zhang & Fanghua Li & Xinye Zheng, 2013. "Strategic interaction and the determinants of public health expenditures in China: a spatial panel perspective," The Annals of Regional Science, Springer, vol. 50(1), pages 203-221, February.
  2. Zheng, Xinye & Li, Fanghua & Song, Shunfeng & Yu, Yihua, 2013. "Central Government's Infrastructure Investment across Chinese Regions: A Dynamic Spatial Panel Data Approach," MPRA Paper 50407, University Library of Munich, Germany.
  3. Cletus C. Coughlin & Thomas A. Garrett & Rubén Hernández-Murillo, 2004. "Spatial probit and the geographic patterns of state lotteries," Working Papers 2003-042, Federal Reserve Bank of St. Louis.
  4. Sarker, M. Mizanur Rahman, 2012. "Spatial modeling of households’ knowledge about arsenic pollution in Bangladesh," Social Science & Medicine, Elsevier, vol. 74(8), pages 1232-1239.
  5. Raphael Almeida Videira & Enlinson Mattos, 2011. "Ciclospolíticos Eleitorais E Interação Espacial De Políticas Fiscais:Evidências Empíricas Para Os Gastos Com Investimentos, Saúde E Educaçãonos Municípios Brasileiros," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 043, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Yonghong Wu & Rebecca Hendrick, 2009. "Horizontal and Vertical Tax Competition in Florida Local Governments," Public Finance Review, , vol. 37(3), pages 289-311, May.
  7. Agostini, Claudio A. & Brown, Philip H. & Zhang, Xiaobo, 2010. "Neighbor effects in the provision of public goods in a young democracy: Evidence from China," IFPRI discussion papers 1027, International Food Policy Research Institute (IFPRI).
  8. Cletus C. Coughlin & Thomas A. Garrett & Rubén Hernández-Murillo, 2007. "Spatial Dependence in Models of State Fiscal Policy Convergence," Public Finance Review, , vol. 35(3), pages 361-384, May.

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