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Tax interaction dynamics among Belgian municipalities, 1984-1997

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  • Jean-François, RICHARD
  • Henry, TULKENS
  • Magali, Verdonck

Abstract

The purpose of this paper is to test econometrically the existence of fiscal interactions between Belgian municipalities. At the time of writing, the motivation was to provide scientific support to the lively debate on fiscal competition that took place among Belgian politicians in the late nineties. Two types of taxes are considered, for which Belgian municipalities have the decision power as to rates : the “centimes additionnels” on the personal income tax and the “précompte immobilier” which is a property tax. A dynamic adjustment model is specified and estimated using panel data for 598 municipalities over 15 years. The empirical results obtained bear upon two main points : (i) Some interaction definitely has prevailed between the municipalities’ fiscal choices made during the observation period, for both taxes; (ii) However, the adjustment reactions to the other municipalities’ fiscal choices have occured over time at the very low yearly pace of 6% and 10% respectively, of the discrepancy between the actual rates and the preferred rates.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2005039.

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Length: 22
Date of creation: 01 Jun 2005
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Handle: RePEc:ctl:louvec:2005039

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  1. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
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  4. Lars P. Feld & Gebhard Kirchgässner, 2000. "Income Tax Competition at the State and Local Level in Switzerland," CESifo Working Paper Series 238, CESifo Group Munich.
  5. Réjane Hugounenq & Jacques Le Cacheux & Thierry Madiès, 1999. "Risques de concurrence fiscale en Europe," Sciences Po publications info:hdl:2441/2142, Sciences Po.
  6. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  7. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
  8. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 481-503, May.
  9. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  10. 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.
  11. Ashworth, John & Heyndels, Bruno, 1997. "Politicians' preferences on local tax rates: An empirical analysis," European Journal of Political Economy, Elsevier, vol. 13(3), pages 479-502, September.
  12. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  13. Goodspeed, Timothy J., 1998. "Tax Competition, Benefit Taxes, and Fiscal Federalism," National Tax Journal, National Tax Association, vol. 51(n. 3), pages 579-86, September.
  14. Goodspeed, Timothy J., 2002. "Tax competition and tax structure in open federal economies: Evidence from OECD countries with implications for the European Union," European Economic Review, Elsevier, vol. 46(2), pages 357-374, February.
  15. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  16. Bruno Heyndels, 1990. "De financierïng van de gewesten via een aanvullende personenbelasting en de betekenis hiervan voor de Belgische gemeenten," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 127, pages 307-336.
  17. Anne Case, 1993. "Interstate tax competition after TRA86," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 136-148.
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Cited by:
  1. Cláudio Burian Wanderley, 2010. "Evolução Da Arrecadação Tributária Municipal Em Minas Gerais No Início Do Novo Milênio," Anais do XIV Seminário sobre a Economia Mineira [Proceedings of the 14th Seminar on the Economy of Minas Gerais], in: Anais do XIV Seminário sobre a Economia Mineira [Proceedings of the 14th Seminar on the Economy of Minas Gerais] Cedeplar, Universidade Federal de Minas Gerais.
  2. Benny Geys & Federico Revelli, 2009. "Decentralization, Competition and the local tax mix: evidence from Flanders," Working Papers 2009/17, Institut d'Economia de Barcelona (IEB).
  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.

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