Tax mimicking in the short- and long-run: Evidence from German reunification

Thushyanthan Baskaran

No 230, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: This paper uses the quasi-experiment of Germany´s reunification to identify local tax mimicking by municipalities in Eastern-Germany. After reunification, East-German municipalities were allowed to independently set, for the first time in decades, local business and property tax rates. I explore whether the tax rates chosen by East-German border municipalities were influenced by the tax rates of adjacent West-German municipalities. To obtain causal estimates, I rely on instrumental variables regressions within the spatial lag framework, using West-German border municipalities - tax rates in 1989 as instruments for their post-reunification tax rates. The results suggest that East-German municipalities mimicked business tax rates immediately after reunification, but not in later years. I find no evidence of mimicking for property taxes. These results indicate that mimicking is not an important determinant of local tax policy.

Keywords: 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: 2015
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Tax mimicking in the short- and the long-run: Evidence from German reunification (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:230

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