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Do Local Governments Engage In Strategic Property- Tax Competition

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  • Luz Amparo Saavedra

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Abstract

This paper uses spatial econometric methods to investigate property-tax competition among local governments. The theoretical model is drawn from the literature on tax competition, in which local jurisdictions choose property-tax rates taking into account the migration of mobile capital in response to tax di®erentials. Using a spatial lag" econometric model, the paper estimates the reaction function of the representative community, which relates the community's property-tax rate to its own characteristics and to the tax rates in competing communities. A nonzero reaction-function slope indicates the presence of strategic interaction in the choice of tax rates. The estimation uses cross-section data on property taxes and other socio-economic variables for cities in the Boston metropolitan area. The results, which are presented for two periods before and after imposition of Proposition 21 2 (a tax limitation measure), indicate the presence of strategic interaction.

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  • Luz Amparo Saavedra, 2000. "Do Local Governments Engage In Strategic Property- Tax Competition," BORRADORES DE ECONOMIA 002378, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:002378
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    Cited by:

    1. Wildasin, David E., 2003. "Fiscal competition in space and time," Journal of Public Economics, Elsevier, vol. 87(11), pages 2571-2588, October.
    2. Buettner, Thiess, 2001. "Fiscal externalities in local tax competition: empirical evidence from a panel of German jurisdictions," ZEW Discussion Papers 01-11, ZEW - Leibniz Centre for European Economic Research.

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