Fiscal interactions in the short and the long run: evidence from German reunification

The tax gradient: spatial aspects of fiscal competition

Thushyanthan Baskaran

Journal of Economic Geography, 2020, vol. 20, issue 3, 711-732

Abstract: This paper uses the quasi-experiment of Germany’s reunification to test for strategic interactions in local taxation. After reunification, East-German municipalities were allowed to choose, for the first time in decades, local business and property tax rates. I explore whether the tax rates they chose were influenced by the tax rates in adjacent West-German municipalities. The results show that East-German municipalities mimicked the business tax rates of their western neighbors immediately after reunification, but not in later years. I find no evidence for interactions in property tax rates. These results are broadly consistent with models of social learning in fiscal policy.

Keywords: Strategic interactions; tax mimicking; business taxes; property taxes; German reunification (search for similar items in EconPapers)
JEL-codes: H20 H71 H77 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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