Do Local Governments Engage in Strategic Property- Tax competition?

Luz Amparo Saavedra

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This paper uses spatial econometric methods to investigate property-tax competition among local governments. The theoretical model is drawn from the literature on tax competition, in which local jurisdictions choose property -tax rates taking into account the migraton of mobile capital in response to tax differentials. Using a "spatial lag" econometric model, the paper estimates the reaction function of the representative community, which relates the community's property - tax rate to its own characteristics and to the tax rates in competing communities. A nonzero reaction -function slope indicates the presence of strategic interaction in the choice of tax rates. The estimation uses cross-section data on property taxes and other socio-economic variables for cities in the Boston metropolitan area. The results, wich are presented for two periods before and after imposition of Proposition 2 1/2 (a tax limitation measure), indicate the presence of strategic interaction.

Date: 2000-01
New Economics Papers: this item is included in nep-com, nep-geo and nep-ure
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:139

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