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Reciprocity and Competition: Is There a Connection?

  • Jonathan C. Rork


    (Andrew Young School of Policy Studies - Georgia State University)

  • Gary A. Wagner


    (University of Arkansas at Little Rock)

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    One challenge states face in designing an income tax system is deciding how to treat non-resident earners. Numerous states have entered into reciprocity agreements with other states that exclude non-residents’ income from the tax base. These agreements provide a unique opportunity to explore the nature of state tax competition. We demonstrate that not only do reciprocity agreements dampen competition over income taxes, but the states that enact agreements also exhibit decreased levels of competition over other tax bases. This suggests that reciprocity agreements are a credible vehicle for states to act cooperatively and avoid a potential race to the bottom.

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    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/1.

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    Length: 35 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:ieb:wpaper:2009/4/doc2009-1
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    8. Karen Smith Conway & Jonathan C. Rork, 2004. "Diagnosis Murder: The Death of State Death Taxes," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 537-559, October.
    9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    10. Egger, Peter & Pfaffermayr, Michael & Winner, Hannes, 2005. "An unbalanced spatial panel data approach to US state tax competition," Economics Letters, Elsevier, vol. 88(3), pages 329-335, September.
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    12. Thiess Buettner, 2001. "Local Business Taxation and Competition for Capital: The Choice of the Tax Rate," CESifo Working Paper Series 440, CESifo Group Munich.
    13. Chernick, Howard, 2005. "On the Determinants of Subnational Tax Progressivity in the U.S," National Tax Journal, National Tax Association, vol. 58(1), pages 93-112, March.
    14. 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.
    15. Anne Case, 1993. "Interstate tax competition after TRA86," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 136-148.
    16. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 695-714, August.
    17. Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
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