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Identifying Strategic Interactions in Swedish Local Income Tax Policies

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  • Edmark, Karin

    ()
    (Department of Economics)

  • Ågren, Hanna

    (Department of Economics)

Abstract

This paper uses data on Swedish local governments to test for strategic interaction in tax setting. We make no a priori assumptions regarding the underlying behaviour of individuals, but instead attempt to test for the presence and type of underlying spatial process. First, we employ the estimation methods used in most earlier studies, however, we stress that these methods are limited in identifying the source of interaction. Hence, we make use of a number of additional, indirect predictions from the theories of tax competition and yardstick competition, in order to test for the presence of strategic interaction. Using such additional predictions of the theories serves a twofold purpose - first it helps us establish if the spatial coefficient is due to strategic interactions or merely reflecting spatial error correlation, and second, it helps identify the source of interaction. The analysis provides strong evidence for spatial dependence in tax rates among Swedish local governments. Moreover, we find weak evidence of tax competition or yardstick competition effects in the setting of tax rates.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2006:22.

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Length: 36 pages
Date of creation: 05 Oct 2006
Date of revision:
Publication status: Published as Edmark, Karin and Hanna Ågren, 'Identifying Strategic Interactions in Swedish Local Income Tax Policies' in Journal of Urban Economics, 2008, pages 849-857.
Handle: RePEc:hhs:uunewp:2006_022

Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Email:
Web page: http://www.nek.uu.se/
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Keywords: Local income tax; Spatial auto-correlation; Tax competition; Yardstick competition;

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