Tax Competition and Yardstick Competition

Jing-Yau Chen Cheng and Chih-Ming Hong
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Jing-Yau Chen Cheng: Department of Economics, Shih Hsin University, Taiwan
Chih-Ming Hong: Department of Economics, Shih Hsin University, Taiwan

Journal of Economics and Management, 2009, vol. 5, issue 1, 55-82

Abstract: This paper uses the ratio of announced rent value to average market price of land as a proxy for the real land tax rate, and employs the spatial econometric approach to estimate the tax competition among local jurisdictions in Taiwan. The empirical results show that the real land tax rate reflects spatial auto-correlation and tax rate interactions among local jurisdictions in Taiwan. Moreover, this paper estimates the coefficient of the tax rate reaction function as 0.316, which is close to the estimates in the international literature. In addition, we find that the direct neighbors to a specific jurisdiction are likely to affect local tax setting behavior more than indirect neighbors. Further, by examining how elected representatives¡¦ votes in local campaigns relate to real land tax rates for local jurisdictions, this paper also shows that yardstick competition is likely to be a source of tax competition in Taiwan.

Keywords: tax competition; yardstick competition; spatial auto-correlation; land tax rate setting (search for similar items in EconPapers)
JEL-codes: C51 D72 H71 H73 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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