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

Rainald Borck, Marco Caliendo and Viktor Steiner

No 528, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In this paper, we consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods, one which benefits mobile skilled workers and one which 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 tow-stage least squares (GS2SLS) procedure. The results show, that there is significant interaction between spending of neighbouring 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)
Pages: 19 p.
Date: 2005
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://www.diw.de/documents/publikationen/73/diw_01.c.43850.de/dp528.pdf (application/pdf)

Related works:
Journal Article: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2007)
Working Paper: Fiscal Competition and the Composition of Public Spending: Theory and Evidence (2006)
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