Identifying Tax-Setting Responses From Local Fiscal Policy Programs

Valeria Merlo, Andreas Schanbacher, Georg U. Thunecke and Georg Wamser

Working Papers from Max Planck Institute for Tax Law and Public Finance

Abstract: This paper studies tax-policy interaction and competition among local governments for both mobile and immobile tax bases. We exploit exogenous changes in the local tax setting of German municipalities due to participation in state debt reduction pro- grams to learn about the size, scope and nature of strategic interaction among local governments. Our results suggest strong and significant tax-policy responses both in corporate and property tax rates. Based on these results, we calculate tax-response function gradients in a range of 0.30 to 0.69. Spatial, political, demographic, and administrative municipality characteristics all influence the tax response qualitatively and quantitatively.

Keywords: Local Public Finance; Tax Competition; Yardstick Competition; Spatial Interaction; Tax-Response Functions (search for similar items in EconPapers)
JEL-codes: C21 H71 H73 R59 (search for similar items in EconPapers)
Pages: 64
Date: 2024-02-21
New Economics Papers: this item is included in nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:mpi:wpaper:tax-mpg-rps-2023-23

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