Tax Competition with Intermunicipal Cooperation

David Agrawal, Marie-Laure Breuillé and Julie Le Gallo

No 11334, CESifo Working Paper Series from CESifo

Abstract: We study local tax competition when municipalities can voluntarily cooperate. We compare the intensity of interjurisdictional policy interdependence between competing municipalities within the same “establishment for inter-municipal cooperation” (EIMC) and competing municipalities outside of the cooperative unit. To resolve the endogeneity of the decision to cooperate we apply the approach of Kelejian and Piras (2014). The strategic response to the average tax rate among peer members of the same EIMC is less intense than the response to the average tax rate of municipalities outside of the cooperative unit. A one percentage point decrease in the average tax rate of non-members lowers the own-jurisdiction tax rate by 0.58 percentage points, while a one unit decrease in the tax rate of towns within the EIMC lowers the own-jurisdiction rate by 0.31 percentage points. Our empirical methods can be used to study strategic interactions within other cooperative groups, including supra-national institutions such as the European Union.

Keywords: tax competition; intermunicipal cooperation; spatial autoregressive models; endogenous weight matrix; local public finance; networks (search for similar items in EconPapers)
JEL-codes: C20 H20 H70 R50 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-pub
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Related works:
Journal Article: Tax Competition With Intermunicipal Cooperation (2025)
Working Paper: Tax competition with intermunicipal cooperation (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11334

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