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Identifying strategic interactions in Swedish local income tax policies

  • Edmark, Karin
  • Ågren, Hanna

This paper uses data on Swedish local governments to test for strategic interaction in local tax setting. We make use of a number of indirect predictions from the theories of tax competition and yardstick competition in order to test for the presence of strategic interaction in these forms. 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 correlation in tax rates among Swedish local governments. Moreover, we find weak evidence of tax competition effects in the setting of tax rates.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 63 (2008)
Issue (Month): 3 (May)
Pages: 849-857

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Handle: RePEc:eee:juecon:v:63:y:2008:i:3:p:849-857
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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