Reciprocity and Competition: Is There a Connection?
AbstractOne challenge states face in designing an income tax system is deciding how to treat non-resident earners. Numerous states have entered into reciprocity agreements with other states that exclude non-residents’ income from the tax base. These agreements provide a unique opportunity to explore the nature of state tax competition. We demonstrate that not only do reciprocity agreements dampen competition over income taxes, but the states that enact agreements also exhibit decreased levels of competition over other tax bases. This suggests that reciprocity agreements are a credible vehicle for states to act cooperatively and avoid a potential race to the bottom.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/1.
Length: 35 pages
Date of creation: 2009
Date of revision:
Spatial econometrics; interjurisdictional competition; state taxation; reciprocity.;
Find related papers by JEL classification:
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-25 (All new papers)
- NEP-PBE-2009-04-25 (Public Economics)
- NEP-SOC-2009-04-25 (Social Norms & Social Capital)
- NEP-URE-2009-04-25 (Urban & Real Estate Economics)
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