Do Fiscal Transfers Alleviate Business Tax Competition? Evidence from Germany

Peter Egger, Marko Köthenbürger and Michael Smart
Authors registered in the RePEc Author Service: Marko Koethenbuerger

No 1955, CESifo Working Paper Series from CESifo

Abstract: The paper empirically analyzes the incentive effects of equalizing transfers on business tax policy by exploiting a natural experiment in the state of Lower Saxony which changed its equalization formula as of 1999. We resort to within-state and across-state difference-in-difference estimates to identify the reform effect on municipalities' business tax rates. Confirming the theoretical prediction, the reform had a significant impact on the municipalities’ tax policy in the four years after the reform with a “phasing out” of the effect starting in the fourth to fifth year. The finding is robust to various alternative specifications.

Keywords: equalization grants; tax competition; local public finance; fiscal capacity equalization (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Do fiscal transfers alleviate business tax competition? Evidence from Germany (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1955

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