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Tax Competition and Yardstick Competition

Author

Listed:
  • Jing-Yau Chen Cheng

    (Department of Economics, Shih Hsin University, Taiwan)

  • Chih-Ming Hong

    (Department of Economics, Shih Hsin University, Taiwan)

Abstract

This paper uses the ratio of announced rent value to average market price of land as a proxy for the real land tax rate, and employs the spatial econometric approach to estimate the tax competition among local jurisdictions in Taiwan. The empirical results show that the real land tax rate reflects spatial auto-correlation and tax rate interactions among local jurisdictions in Taiwan. Moreover, this paper estimates the coefficient of the tax rate reaction function as 0.316, which is close to the estimates in the international literature. In addition, we find that the direct neighbors to a specific jurisdiction are likely to affect local tax setting behavior more than indirect neighbors. Further, by examining how elected representatives¡¦ votes in local campaigns relate to real land tax rates for local jurisdictions, this paper also shows that yardstick competition is likely to be a source of tax competition in Taiwan.

Suggested Citation

  • Jing-Yau Chen Cheng & Chih-Ming Hong, 2009. "Tax Competition and Yardstick Competition," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 5(1), pages 55-82, January.
  • Handle: RePEc:jec:journl:v:5:y:2009:i:1:p:55-82
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    More about this item

    Keywords

    tax competition; yardstick competition; spatial auto-correlation; land tax rate setting;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • 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

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