Economic Integration and Local Tax Mimicking

Carolin Holzmann and Axel von Schwerin

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper provides empirical evidence for tax mimicking among unicipalities by exploiting a quasi-experiment in the German local fiscal equalization scheme. We show for the metropolitan area FrankfurtRheinMain that, besides neighborhood, the degree of economic integration of municipalities determines the interdependency among their tax policies. As the metropolitan area spreads across municipalities located in the two German federal states, Hesse and Rhineland-Palatinate, we can show that Rhineland-Palatine municipalities statistically significantly respond in their local tax rates to an exogenous change in the Hessian local fiscal equalization scheme. However, we find tax rate interdependency only for Rhineland-Palatine metropolitan municipalities which are arguably strongly economically integrated with Hessian metropolitan municipalities. The results suggest that regional economic integration is a key determinant for tax mimicking.

JEL-codes: H20 H70 H71 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112893

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