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Empirical evidence on horizontal competition in tax enforcement

  • José María Durán-Cabré

    ()

    (Universitat de Barcelona & IEB)

  • Alejandro Esteller-Moré

    ()

    (Universitat de Barcelona & IEB)

  • Luca Salvadori

    ()

    (Universitat de Barcelona & IEB)

Tax auditing parameters have been largely overlooked by the literature as policy-making instruments of any relevance; however, enforcement strategies are critical elements of the tax burden. In this paper we show that, in a federal framework, tax auditing policies can serve as additional tools for regional interaction. We examine the presence of this interaction by adopting a spatial econometric approach. We employ a time-space recursive model that accounts for sluggish adjustment in auditing policies and obtain results that are congruent with standard theory, corroborating the presence of horizontal competition between regions in their tax auditing policies. We also find that once regional governments acquire legal power, the opaque competition in enforcement policies disappears apparently switching to a more transparent competition in statutory tax parameters.

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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/5.

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Length: 34 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/3/doc2012-5
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  1. Joan Costa Font & Jordi Pons Novell, 2005. "Public Health Expenditure and Spatial Interactions in a Decentralized National Health System," Working Papers in Economics 139, Universitat de Barcelona. Espai de Recerca en Economia.
  2. Brülhart, Marius & Parchet, Raphaël, 2011. "Alleged Tax Competition: The Mysterious Death of Bequest Taxes in Switzerland," CEPR Discussion Papers 8665, C.E.P.R. Discussion Papers.
  3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  4. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  5. Cremer, Helmuth & Gahvari, Firouz, 2000. "Tax evasion, fiscal competition and economic integration," European Economic Review, Elsevier, vol. 44(9), pages 1633-1657, October.
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