Tax and the city: A theory of local tax competition and evidence for Germany
AbstractDespite the well-developed empirical literature on local tax competition, little is known about the actual spatial structure of inter-municipal competition. Assuming that competition takes place only among neighbours (as in the empirical literature) is at odds with the theoretical approaches where all jurisdictions compete simultaneously. In this paper we use a survey conducted among mayors in the German state of Baden-Württemberg to show that the perceived intensity of competition for firms varies considerably between jurisdictions and can mainly be explained by the size and location of the jurisdiction. Based on these findings, we develop a sequential tax competition model in which urban centres compete with other urban centres and rural jurisdictions in their own neighbourhood. This model predicts that larger jurisdictions do not necessarily rely more on capital taxes; in case they face strong competition with more distant competitors, larger cities even have lower capital taxes. In addition, we discuss how the model compares to a standard simultaneous approach and show that results from our sequential model are in line with trends in local taxation in Baden-Württemberg. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-005.
Date of creation: 2012
Date of revision:
Local tax competition; survey; intensity of competition; asymmetric tax competition;
Find related papers by JEL classification:
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-03-21 (Accounting & Auditing)
- NEP-ALL-2012-03-21 (All new papers)
- NEP-GEO-2012-03-21 (Economic Geography)
- NEP-PBE-2012-03-21 (Public Economics)
- NEP-PUB-2012-03-21 (Public Finance)
- NEP-URE-2012-03-21 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Borck, Rainald & Pfluger, Michael, 2006.
"Agglomeration and tax competition,"
European Economic Review,
Elsevier, vol. 50(3), pages 647-668, April.
- Rainald Borck & Michael Pflüger, 2004. "Agglomeration and Tax Competition," Discussion Papers of DIW Berlin 408, DIW Berlin, German Institute for Economic Research.
- Borck, Rainald & Pflüger, Michael P., 2004. "Agglomeration and Tax Competition," IZA Discussion Papers 1033, Institute for the Study of Labor (IZA).
- Geys, Benny & Osterloh, Steffen, 2011. "Politicians' opinions on rivals in the competition for firms: An empirical analysis of reference points near a border," ZEW Discussion Papers 11-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Marius Brülhart & Raphaël Parchet, 2010. "Alleged Tax Competition: The Mysterious Death of InheritanceTaxes in Switzerland," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 10.04, Université de Lausanne, Faculté des HEC, DEEP.
- Strauss-Kahn, Vanessa & Vives, Xavier, 2009.
"Why and where do headquarters move?,"
Regional Science and Urban Economics,
Elsevier, vol. 39(2), pages 168-186, March.
- Craig Brett & Christina Tardif, 2008. "The Grants are Falling! The Grants are Falling! How Municipal Governments Changed Taxes in Response to Provincial Support in New Brunswick, 19832003," Canadian Public Policy, University of Toronto Press, vol. 34(4), pages 441-456, December.
- Janeba, Eckhard & Heinemann, Friedrich, 2011.
"Viewing tax policy through party-colored glasses: What German politicians believe,"
33096, University Library of Munich, Germany.
- Friedrich Heinemann & Eckhard Janeba, 2011. "Viewing Tax Policy Through Party‐Colored Glasses: What German Politicians Believe," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 286-311, 08.
- Friedrich Heinemann & Eckhard Janeba, 2008. "Viewing tax policy through party-colored glasses: What German politicians believe," Working Papers 0805, Oxford University Centre for Business Taxation.
- Jouke van Dijk & Piet H. Pellenbarg, 2000.
"Firm relocation decisions in The Netherlands: An ordered logit approach,"
Papers in Regional Science,
Springer, vol. 79(2), pages 191-219.
- van Dijk, Jouke & Pellenbarg, Piet H., 1999. "Firm relocation decisions in The Netherlands: an ordered logit approach," ERSA conference papers ersa99pa418, European Regional Science Association.
- Kempf, Hubert & Rota-Graziosi, Grégoire, 2010. "Endogenizing leadership in tax competition," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 768-776, October.
- Sebastian Hauptmeier & Ferdinand Mittermaier & Johannes Rincke, 2008.
"Fiscal Competition over Taxes and Public Inputs: Theory and Evidence,"
CESifo Working Paper Series
2499, CESifo Group Munich.
- Hauptmeier, Sebastian & Mittermaier, Ferdinand & Rincke, Johannes, 2009. "Fiscal competition over taxes and public inputs - theory and evidence," Working Paper Series 1033, European Central Bank.
- Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers 200226, Rutgers University, Department of Economics.
- Federico Revelli, 2005. "On Spatial Public Finance Empirics," International Tax and Public Finance, Springer, vol. 12(4), pages 475-492, August.
- Mutsumi Matsumoto, 2010. "Entry in tax competition: a note," International Tax and Public Finance, Springer, vol. 17(6), pages 627-639, December.
- Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2009.
"Economic integration and the relationship between profit and wage taxes,"
Springer, vol. 138(3), pages 423-446, March.
- Andreas Haufler & Alexander Klemm & Guttorm Schjelderup, 2008. "Economic integration and the relationship between profit and wage taxes," Working Papers 0810, Oxford University Centre for Business Taxation.
- Sascha O. Becker & Peter Egger & Valeria Merlo, 2009.
"How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany,"
CESifo Working Paper Series
2517, CESifo Group Munich.
- Becker, Sascha & Egger, Peter H & Merlo, Valeria, 2008. "How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany," Stirling Economics Discussion Papers 2008-30, University of Stirling, Division of Economics.
- Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
- Michael Overesch & Johannes Rincke, 2009. "Competition from Low-wage Countries and the Decline of Corporate Tax Rates: Evidence from European Integration," The World Economy, Wiley Blackwell, vol. 32(9), pages 1348-1364, 09.
- repec:ubc:bricol:98-03 is not listed on IDEAS
- Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 695-714, August.
- Haufler, Andreas & Wooton, Ian, 2010. "Competition for firms in an oligopolistic industry: The impact of economic integration," Journal of International Economics, Elsevier, vol. 80(2), pages 239-248, March.
- Jayet, Hubert & Paty, Sonia, 2006. "Capital indivisibility and tax competition: Are there too many business areas when some of them are empty?," Journal of Urban Economics, Elsevier, vol. 60(3), pages 399-417, November.
- Fuest, Clemens & Peichl, Andreas & Siegloch, Sebastian, 2013.
"Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany,"
IZA Discussion Papers
7390, Institute for the Study of Labor (IZA).
- Fuest, Clemens & Peichl, Andreas & Siegloch, Sebastian, 2013. "Do higher corporate taxes reduce wages? Micro evidence from Germany," ZEW Discussion Papers 13-039, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Clemens Fuest & Andreas Peichl & Sebastian Siegloch, 2013. "Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany," CESifo Working Paper Series 4247, CESifo Group Munich.
- Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-113, Social Science Research Center Berlin (WZB).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.