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Fiscal externalities in local tax competition: empirical evidence from a panel of German jurisdictions

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  • Buettner, Thiess

Abstract

This paper is concerned with fiscal externalities arising from local taxation of a mobile factor. Using a panel of more 1100 local jurisdictions it provides empirical evidence on how the local tax rate as well as the tax rate in the neighborhood affect the local tax base. The results support the existence of fiscal externalities: an increase in the tax rate of local neighbors exerts a positive effect on the tax base whereas an increase of the own tax rate has a negative effect, and a joint increase of the tax rate at the local jurisdiction and in its neighborhood has no significant effect on the interjurisdictional distribution of the tax base. However, in the considered case tax competition is alleviated by revenue sharing rules which reduce the jurisdictions' incentive to lower tax rates in order to attract capital. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 01-11.

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Date of creation: 2001
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Handle: RePEc:zbw:zewdip:5366

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Related research

Keywords: Local Capital Taxation; Fiscal Externalities; Tax Competition; Fiscal Equalization Grant; Empirical Investigation; Panel Data;

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References

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  1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 25-45, March.
  2. Craig Brett & Joris Pinkse, 1997. "Those Taxes are all over the Map! A Test for Spatial Independence of Municipal Tax Rates in British Columbia," International Regional Science Review, , , vol. 20(1-2), pages 131-151, April.
  3. Richter, W.F., 1991. "The Efficient Allocation of Local Public Factors in Tiebout's Tradition," The Warwick Economics Research Paper Series (TWERPS) 378, University of Warwick, Department of Economics.
  4. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June.
  5. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
  6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
  7. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2000. "Local Revenue Hills: A General Equilibrium Specification with Evidence from Four U.S. Cities," NBER Working Papers 7603, National Bureau of Economic Research, Inc.
  8. Thiess Buettner, 2001. "Local Business Taxation and Competition for Capital: The Choice of the Tax Rate," CESifo Working Paper Series 440, CESifo Group Munich.
  9. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(3), pages 695-714, August.
  10. WILDASIN, David E., . "Interjurisdictional capital mobility: Fiscal externality and a corrective subsidy," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -831, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, Econometric Society, vol. 59(4), pages 953-65, July.
  12. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  13. Luz Amparo Saavedra, 2000. "Do Local Governments Engage In Strategic Property- Tax Competition," BORRADORES DE ECONOMIA 002378, BANCO DE LA REPÚBLICA.
  14. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 378-83, May.
  15. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 28(4), pages 465-473, July.
  16. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-29, May.
  17. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1371-95, November.
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  1. repec:got:cegedp:37 is not listed on IDEAS
  2. Thiess Buettner, 2005. "The Incentive Effect of Fiscal Equalization Transfers on Tax Policy," CESifo Working Paper Series 1404, CESifo Group Munich.

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