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Public input and business tax competition in local communities in Brazil

Author

Listed:
  • Ricardo B. Politi

    (Federal University at ABC (UFABC))

  • Enlinson Mattos

    (Fundação Getúlio Vargas)

  • Eric Picin

    (Fundação Getúlio Vargas)

Abstract

Previous works emphasize the role of tax rates as the key feature of tax competition. This paper brings into attention how local jurisdictions consider the level of public provision in infrastructure and the business tax rates as strategic complements to compete for capital. We use a spatial Durbin model to estimate the impact of a change in the public infrastructure of a particular jurisdiction on one’s own and on their neighbors’ business tax rates. Using data for approximately 5,000 municipalities in Brazil over a seven-year period, our main findings indicate that local governments reactions to tax rate reductions from neighboring jurisdictions are associated in three possible ways: also decreasing their effective tax rates, increasing their public infrastructure spending, or combining both strategies.

Suggested Citation

  • Ricardo B. Politi & Enlinson Mattos & Eric Picin, 2021. "Public input and business tax competition in local communities in Brazil," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(3), pages 799-824, December.
    • Handle: RePEc:spr:anresc:v:67:y:2021:i:3:d:10.1007_s00168-021-01067-w
    DOI: 10.1007/s00168-021-01067-w
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    Cited by:

    1. Haixia Shi & Change Shen, 2022. "Tax Competition, Capital Flow, and the Innovation Efficiency of Industrial Enterprises," Sustainability, MDPI, vol. 14(8), pages 1-12, April.

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    More about this item

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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