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Does fiscal cooperation increase local tax rates ?

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  • Sylvie Charlot
  • Sonia Paty
  • Virginie Piguet

Abstract

The main purpose of this paper is to assess the effects of fiscal cooperation on local taxation in a decentralized country, using the French experience. We estimate a model of tax setting for local business tax using spatial and dynamic econometric techniques, for the period 1993-2003. We find first that reducing the number of municipalities is likely to limit tax competition and increase local business tax rates as a consequence. Second, we find that tax rates are higher when groups of localities set a single business tax rate rather than applying an additional rate of business tax, suggesting that horizontal tax competition constrains the level of tax rate increase generated by tax-base sharing.

Suggested Citation

  • Sylvie Charlot & Sonia Paty & Virginie Piguet, 2010. "Does fiscal cooperation increase local tax rates ?," INRA UMR CESAER Working Papers 2010/1, INRA UMR CESAER, Centre d'’Economie et Sociologie appliquées à l'’Agriculture et aux Espaces Ruraux.
    • Handle: RePEc:ceo:wpaper:2
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    File URL: http://www2.dijon.inra.fr/cesaer/workingpapers/RePEc/ceo/wpaper/wp2010_1.pdf
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    References listed on IDEAS

    as
    1. 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.
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    Cited by:

    1. Björn Kauder, 2016. "Incorporation of municipalities and population growth: A propensity score matching approach," Papers in Regional Science, Wiley Blackwell, vol. 95(3), pages 539-554, August.

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    More about this item

    Keywords

    Consolidation; Tax competition; Vertical externalities; Local business tax;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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