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Reciprocity and Competition: Is There a Connection?

Author

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  • Jonathan C. Rork

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

  • Gary A. Wagner

    () (University of Arkansas at Little Rock)

Abstract

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.

Suggested Citation

  • Jonathan C. Rork & Gary A. Wagner, 2009. "Reciprocity and Competition: Is There a Connection?," Working Papers 2009/1, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2009/4/doc2009-1
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    File URL: http://ieb.ub.edu/aplicacio/fitxers/2009/4/Doc2009-1.pdf
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    References listed on IDEAS

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    Cited by:

    1. Albert Solé-Ollé & Pilar Sorribas-Navarro, 2012. "The dynamic adjustment of local government budgets: does Spain behave differently?," Applied Economics, Taylor & Francis Journals, vol. 44(25), pages 3203-3213, September.
    2. Ken Sanford & William Hoyt, 2009. "Is the Grass Greener on the Other Side of the River?: The Choice of Where to Work and Where to Live for Movers," Working Papers 2009-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.

    More about this item

    Keywords

    Spatial econometrics; interjurisdictional competition; state taxation; reciprocity.;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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