Fiscal Competition and the Composition of Public Spending: Theory and Evidence

Rainald Borck, Marco Caliendo and Viktor Steiner ()
Additional contact information
Viktor Steiner: Free University of Berlin

No 2428, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods, one which benefits mobile skilled workers and one which benefits immobile unskilled workers. We derive the jurisdictions’ reaction functions for different spending categories. We then estimate these reaction functions using data from German communities. Thereby we explicitly allow for a spatially lagged dependent variable and a possible spatial error dependence by applying a generalized spatial two-stage least squares (GS2SLS) procedure. The results show that there is significant interaction between spending of neighbouring counties in Germany.

Keywords: public spending; spatial econometrics; tax competition; capital skill complementarity (search for similar items in EconPapers)
JEL-codes: H77 J24 J61 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2006-11
New Economics Papers: this item is included in nep-geo, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published - published in: FinanzArchiv, 2007, 63 (2), 264-277

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https://docs.iza.org/dp2428.pdf (application/pdf)

Related works:
Journal Article: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2007)
Working Paper: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2005)
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