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Identifying local tax mimicking: Administrative borders and a policy reform

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  • Baskaran, Thushyanthan

Abstract

This paper exploits an exogenous reform of the local fiscal equalization scheme in the German State of North Rhine-Westphalia to identify tax mimicking by municipalities in the neighboring state of Lower Saxony. The spatial lag regressions provide no evidence for the existence of strategic interactions in municipal business and property taxes. In contrast, traditional spatial lag regressions that rely on variation in neighbors' demographic, political, or economic characteristics for identification provide strong evidence for strategic interactions. This pattern of results indicates that most of the extant literature overestimates the importance of local tax mimicking.

Suggested Citation

  • Baskaran, Thushyanthan, 2013. "Identifying local tax mimicking: Administrative borders and a policy reform," Center for European, Governance and Economic Development Research Discussion Papers 157, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:157
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    References listed on IDEAS

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    Cited by:

    1. Borck, Rainald & Fossen, Frank M. & Freier, Ronny & Martin, Thorsten, 2015. "Race to the debt trap? — Spatial econometric evidence on debt in German municipalities," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 20-37.
    2. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.

    More about this item

    Keywords

    Tax mimicking; business tax; property tax; intergovernmental equalization;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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