Culture and Taxes: Towards Identifying Tax Competition
Beatrix Eugster () and
Raphaël Parchet ()
No 1339, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science
We propose a difference-in-differences strategy to identify the existence of interjurisdictional tax competition, and to estimate its spatial reach. Our strategy rests on differences between desired tax levels, determined by culture-specific preferences, and equilibrium tax levels, determined by interjurisdictional fiscal externalities as well as by preferences. While fiscal preferences differ systematically and demonstrably between French-speaking and German-speaking Swiss regions, we find that local income tax burdens do not change discretely at the language border but exhibit smooth spatial gradients. The slope of these gradients implies that tax competition constrains tax choices of jurisdictions with a preference for higher taxes up to a distance of around 20 kilometers. Hence, tax competition does constrain income taxation by local governments but its effect is confined to a small spatial scale.
Keywords: Tax competition; fiscal federalism; culture (search for similar items in EconPapers)
JEL-codes: H31 H71 Z10 (search for similar items in EconPapers)
Pages: 44 pages
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
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Working Paper: Culture and Taxes: Towards Identifying Tax Competition (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2013:39
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