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Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms

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  • Geys, Benny
  • Osterloh, Steffen

Abstract

Studies of spatial policy interdependence in (local) public policies usually concentrate on the relations between jurisdictions within a single analysed region, and disregard possible extra-regional effects. However, the theoretical spatial statistics literature shows that biased estimates might emerge if spatial interactions extend beyond the boundaries of the available data (i.e., the boundary value problem). This paper empirically assesses the practical relevance of this concern by studying German local politicians' assessments of their jurisdictions' main competitors in the struggle to attract firms. We find that location near a border significantly undermines politicians' perception that the fiercest competitive pressure derives from jurisdictions within their own state. This effect sets in about 20km (10.2km) from a national (international) border. These results indicate that nearest municipalities perceive each other as competitors regardless of the state or country where they are located, which has important implications for estimating spatial dependence models.

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  • Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-113, Social Science Research Center Berlin (WZB).
  • Handle: RePEc:zbw:wzbfff:spii2012113
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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. Agrawal, David R., 2016. "Local fiscal competition: An application to sales taxation with multiple federations," Journal of Urban Economics, Elsevier, vol. 91(C), pages 122-138.
    3. repec:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9419-y is not listed on IDEAS
    4. Janeba, Eckhard & Osterloh, Steffen, 2012. "Tax and the city: A theory of local tax competition and evidence for Germany," ZEW Discussion Papers 12-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Anping Chen & Marlon Boarnet & Mark Partridge & Yongzheng Liu & Jorge Martinez-Vazquez, 2014. "Interjurisdictional Tax Competition In China," Journal of Regional Science, Wiley Blackwell, vol. 54(4), pages 606-628, September.
    6. repec:kap:pubcho:v:172:y:2017:i:3:d:10.1007_s11127-017-0460-x is not listed on IDEAS
    7. Zareh Asatryan & Annika Havlik & Frank Streif, 2017. "Vetoing and inaugurating policy like others do: evidence on spatial interactions in voter initiatives," Public Choice, Springer, vol. 172(3), pages 525-544, September.
    8. repec:eee:pubeco:v:152:y:2017:i:c:p:47-54 is not listed on IDEAS
    9. Blesse, Sebastian & Martin, Thorsten, 2015. "Let's stay in touch - evidence on the role of social learning in local tax interactions," ZEW Discussion Papers 15-081, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Furdas, Marina & Homolkova, Katerina & Kis-Katos, Krisztina, 2015. "Local Political Budget Cycles in a Federation: Evidence from West German Cities," IZA Discussion Papers 8798, Institute for the Study of Labor (IZA).
    11. Björn Kauder, 2015. "Spatial Administrative Structure And Intra-Metropolitan Tax Competition," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 626-643, September.
    12. Freier, Ronny & Geys, Benny & Holm, Joshua, 2016. "Religious heterogeneity and fiscal policy: Evidence from German reunification," Journal of Urban Economics, Elsevier, vol. 94(C), pages 1-12.
    13. Yu, Jihai & Zhou, Li-An & Zhu, Guozhong, 2016. "Strategic interaction in political competition: Evidence from spatial effects across Chinese cities," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 23-37.

    More about this item

    Keywords

    government interaction; boundary value problem; border effects; policy interdependence;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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