IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Local Business Taxation and Competition for Capital: The Choice of the Tax Rate

  • Thiess Buettner

A theoretical model describes the local choice of the tax rate on capital income. It establishes preferences and various fiscal conditions - including the tax rates of competing jurisdictions - as determinants of the tax rate. The empirical implications are tested using a large panel of jurisdictions in Germany, which have discretion in setting the local rate of the business tax. Tax competition is identified by means of instrumental variables techniques. Despite significant competition effects between local neighbors, where tax rates are strategic complements, jurisdictions are found to have some leeway in using the tax rate as an instrument of their policy. In particular, large jurisdictions set higher tax rates in interjurisdictional competition.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 440.

in new window

Date of creation: 2001
Date of revision:
Handle: RePEc:ces:ceswps:_440
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  2. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
  3. Matsumoto, Mutsumi, 1998. "A note on tax competition and public input provision," Regional Science and Urban Economics, Elsevier, vol. 28(4), pages 465-473, July.
  4. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
  5. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  6. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
  7. Hoyt, William H., 1992. "Market power of large cities and policy differences in metropolitan areas," Regional Science and Urban Economics, Elsevier, vol. 22(4), pages 539-558, November.
  8. Thiess Buettner, 1999. "The effect of unemployment, aggregate wages, and spatial contiguity on local wages: An investigation with German district level data," Papers in Regional Science, Springer, vol. 78(1), pages 47-67.
  9. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  10. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
  11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  12. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier.
  13. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
  14. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
  15. 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.
  16. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  17. repec:oup:restud:v:47:y:1980:i:1:p:225-38 is not listed on IDEAS
  18. Helen F. Ladd, 1992. "Mimicking of Local Tax Burdens Among Neighboring Counties," Public Finance Review, , vol. 20(4), pages 450-467, October.
  19. Seitz, Helmut, 1995. "The Productivity and Supply of Urban Infrastructures," The Annals of Regional Science, Springer, vol. 29(2), pages 121-41, May.
  20. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
  21. Conrad, Klaus & Seitz, Helmut, 1997. "Infrastructure provision and international market share rivalry," Regional Science and Urban Economics, Elsevier, vol. 27(6), pages 715-734, November.
  22. Ashworth, John & Heyndels, Bruno, 1997. "Politicians' preferences on local tax rates: An empirical analysis," European Journal of Political Economy, Elsevier, vol. 13(3), pages 479-502, September.
  23. Fitzenberger, Bernd, 1998. "The moving blocks bootstrap and robust inference for linear least squares and quantile regressions," Journal of Econometrics, Elsevier, vol. 82(2), pages 235-287, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_440. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.