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Tax interactions among Belgian municipalities: Do interregional differences matter?

  • Gérard, Marcel
  • Jayet, Hubert
  • Paty, Sonia

This paper tests the existence of strategic interactions among municipalities, based on a panel of Belgian local tax rates from 1985 to 2004. A special emphasis is put on the role of the interregional differences in Belgium. Our results partly confirm previous findings for Belgium suggesting that municipalities interact over the local surcharge on the (labor) income tax rate but not on the local surcharge on the property tax. Using spatial econometrics tools and an original methodology for specifying weight matrices, we find that municipalities are sensitive to the local income tax rates set by only their closest neighbors. We cannot reject the hypothesis that interregional differences matter for municipalities belonging to the Brussels region: for the local income tax rate, the intensity of interactions is shown to be higher between municipalities belonging to the Brussels region than between municipalities belonging to different regions.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 40 (2010)
Issue (Month): 5 (September)
Pages: 336-342

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Handle: RePEc:eee:regeco:v:40:y:2010:i:5:p:336-342
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  1. Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
  2. Yvon Rocaboy & Jean-Michel Josselin & Lars P. Feld, 2002. "Le mimétisme fiscal : une application aux Régions françaises," Économie et Prévision, Programme National Persée, vol. 156(5), pages 43-49.
  3. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
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  7. Sole Olle, Albert, 2003. "Electoral accountability and tax mimicking: the effects of electoral margins, coalition government, and ideology," European Journal of Political Economy, Elsevier, vol. 19(4), pages 685-713, November.
  8. Giuseppe Arbia & Michele Battisti & Gianfranco Di Vaio, 2009. "Institutions and geography: Empirical test of spatial growth models for European regions," Quaderni del Dipartimento di Economia, Finanza e Statistica 72/2009, Università di Perugia, Dipartimento Economia.
  9. Lars P. Feld & Emmanuelle Reulier, 2005. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," CREMA Working Paper Series 2005-19, Center for Research in Economics, Management and the Arts (CREMA).
  10. Wildasin, D.E., 1987. "Nash equilibria in models of fiscal competition," CORE Discussion Papers 1987020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
  12. Jan K. Brueckner & Luz A. Saavedra, 2000. "Do Local Governments Engage in Strategic Property-Tax Competition?," Econometric Society World Congress 2000 Contributed Papers 0357, Econometric Society.
  13. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993) 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
  14. Sylvie Charlot & Sonia Paty, 2007. "Market access effect and local tax setting: evidence from French panel data," Journal of Economic Geography, Oxford University Press, vol. 7(3), pages 247-263, May.
  15. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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