Reciprocity and Competition: Is There a Connection?

Jonathan Rork and Gary A. Wagner ()
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Gary A. Wagner: University of Arkansas at Little Rock

No 2009/1, Working Papers from Institut d'Economia de Barcelona (IEB)

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.

Keywords: Spatial econometrics; interjurisdictional competition; state taxation; reciprocity. (search for similar items in EconPapers)
JEL-codes: H7 R5 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009
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Citations: View citations in EconPapers (9)

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