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Do Local Governments Engage In Strategic Property- Tax Competition

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  • 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 migration of mobile capital in response to tax di®erentials. 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, which are presented for two periods before and after imposition of Proposition 21 2 (a tax limitation measure), indicate the presence of strategic interaction.

Suggested Citation

  • Luz Amparo Saavedra, 2000. "Do Local Governments Engage In Strategic Property- Tax Competition," Borradores de Economia 2378, Banco de la Republica.
  • Handle: RePEc:col:000094:002378
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    References listed on IDEAS

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    Cited by:

    1. Wildasin, David E., 2003. "Fiscal competition in space and time," Journal of Public Economics, Elsevier, vol. 87(11), pages 2571-2588, October.
    2. Emilie Caldeira & Martial Foucault & Gregoire Rota-Graziosi, 2015. "Decentralization in Africa and the nature of local governments’ competition: evidence from Benin," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(6), pages 1048-1076, December.
    3. Quentin Frère & Hakim Hammadou & Sonia Paty, 2011. "The range of local public services and population size: Is there a “zoo effect” in French jurisdictions?," Recherches économiques de Louvain, De Boeck Université, vol. 77(2), pages 87-104.
    4. Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
    5. Buettner, Thiess, 2001. "Fiscal externalities in local tax competition: empirical evidence from a panel of German jurisdictions," ZEW Discussion Papers 01-11, ZEW - Leibniz Centre for European Economic Research.

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