Fiscal Competition and the Composition of Public Spending: Theory and Evidence

Rainald Borck, Marco Caliendo and Viktor Steiner

FinanzArchiv: Public Finance Analysis, 2007, vol. 63, issue 2, 264-277

Abstract: We consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods: one that benefits mobile skilled workers and one that benefits immobile unskilled workers. We derive the jurisdictions' reaction functions for different spending categories. We then estimate these reaction functions using data from German communities. Thereby we explicitly allow for a spatially lagged dependent variable and a possible spatial error dependence by applying a generalized spatial two-stage least-squares (GS2SLS) procedure. The results show that there is significant interaction between spending of neighboring counties in Germany.

Keywords: tax competition; capital-skill complementarity; public spending; spatial econometrics (search for similar items in EconPapers)
JEL-codes: H77 J24 J61 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2006)
Working Paper: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2005)
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DOI: 10.1628/001522107X220107

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