Constrained Tax Competition – Empirical Effects of the Minimum Tax Rate on the Tax Rate Distribution

Axel von Schwerin and Thiess Buettner
Authors registered in the RePEc Author Service: Thiess Büttner

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: The paper explores the effect of a minimum tax rate on the tax policy of jurisdictions competing for investment and business location. The testing ground is the universe of local municipalities in the German federation which enjoy the autonomy to set the tax-rate of the local business tax. After experiencing problems with profit-shifting between jurisdictions, in 2004 a federal reform forced municipalities to charge a minimum tax rate on local business profits. As a consequence, low-tax municipalities, i.e. municipalities with tax rates below the minimum, had to adjust their tax policy. In the light of the theoretical literature on minimum tax rates in tax competition, we explore whether the reform has altered the tax-rate distribution beyond the effect on low-tax jurisdictions. More specifically, we test whether municipalities with tax rates above the minimum rate have reviewed their tax policy and decided to set higher tax rates. The empirical results point to significant effects in this regard. We show that the distribution has become more compressed in the bottom part after the reform. Moreover, our results provide quasi-experimental evidence on tax-competition effects in the sense that jurisdictions competing with low-tax jurisdictions have responded with setting higher tax-rates.

JEL-codes: H23 H25 H71 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/145642/1/VfS_2016_pid_6567.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145642

Access Statistics for this paper

More papers in VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().