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Do Local Governments Engage in Strategic Property- Tax competition?

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Author Info
Luz Amparo Saavedra
Abstract

This paper uses spatial econometric methods to investigate property-tax competition among local governments. The theoretical model is drawn from the literature on tax competition, in which local jurisdictions choose property -tax rates taking into account the migraton of mobile capital in response to tax differentials. Using a "spatial lag" econometric model, the paper estimates the reaction function of the representative community, which relates the community's property - tax rate to its own characteristics and to the tax rates in competing communities. A nonzero reaction -function slope indicates the presence of strategic interaction in the choice of tax rates. The estimation uses cross-section data on property taxes and other socio-economic variables for cities in the Boston metropolitan area. The results, wich are presented for two periods before and after imposition of Proposition 2 1/2 (a tax limitation measure), indicate the presence of strategic interaction.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 139.

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  1. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November. [Downloadable!] (restricted)
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  7. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March. [Downloadable!] (restricted)
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  8. Figlio, David N. & Kolpin, Van W. & Reid, William E., 1999. "Do States Play Welfare Games?," Journal of Urban Economics, Elsevier, vol. 46(3), pages 437-454, November. [Downloadable!] (restricted)
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  15. Wilson John Douglas, 1995. "Mobile Labor, Multiple Tax Instruments, and Tax Competition," Journal of Urban Economics, Elsevier, vol. 38(3), pages 333-356, November. [Downloadable!] (restricted)
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  19. Wildasin, David E., 1991. "Some rudimetary 'duopolity' theory," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 393-421, November. [Downloadable!] (restricted)
  20. Katharine L. Bradbury, 1988. "Shifting property tax burdens in Massachusetts," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 36-48.
  21. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Papers 4, Queen's at Kingston - John Deutsch Inst. for Study of Economic Policy.
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  22. Wildasin, David E., 1989. "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," Journal of Urban Economics, Elsevier, vol. 25(2), pages 193-212, March. [Downloadable!] (restricted)
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  24. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May. [Downloadable!] (restricted)
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