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Strategic tax and public service competition among local governments

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  • Lauridsen, Jørgen

    (Department of Business and Economics)

  • Nannerup, Niels

    ()
    (Department of Business and Economics)

  • Skak, Morten

    (Department of Business and Economics)

Abstract

Tax and public service competition between local governments concerning localisation of new residents is analysed in a setting of economic spillovers which means that also a neighbouring region will benefit from localisation via demand of residents in a border region, (a so-called host region). We identify two basic Nash-equilibrium outcomes of the analysed tax-game. In one of these outcomes local tax rates will be different across the regions – a fact that appears important for (future) empirical studies of local tax competition. Due to the lack of adequate theoretical modelling, studies in this field have often demonstrated spatial dependence of local policy variables without identifying the source of interaction between decision-makers. Our theoretical findings prove to be robust to a range of important expansions of the basic simple framework.

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Bibliographic Info

Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 9/2011.

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Length: 29 pages
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:hhs:sdueko:2011_009

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Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Phone: 65 50 32 33
Fax: 65 50 32 37
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Web page: http://www.sdu.dk/ivoe
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Keywords: Local tax competition; household locational choice; spillover effects; Nash-equilibria;

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  1. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  2. Mintz, Jack & Tulkens, Henry, 1986. "Commodity tax competition between member states of a federation: equilibrium and efficiency," Journal of Public Economics, Elsevier, Elsevier, vol. 29(2), pages 133-172, March.
  3. Edmark, Karin & Ågren, Hanna, 2006. "Identifying Strategic Interactions in Swedish Local Income Tax Policies," Working Paper Series, Uppsala University, Department of Economics 2006:22, Uppsala University, Department of Economics.
  4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  5. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
  6. Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer, Springer, vol. 12(4), pages 493-513, August.
  7. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
  8. Hoel, Michael, 1997. " Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 99(2), pages 241-59, June.
  9. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
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