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Fiscal interactions in the short and the long run: evidence from German reunification
[The tax gradient: spatial aspects of fiscal competition]

Author

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  • Thushyanthan Baskaran

Abstract

This paper uses the quasi-experiment of Germany’s reunification to test for strategic interactions in local taxation. After reunification, East-German municipalities were allowed to choose, for the first time in decades, local business and property tax rates. I explore whether the tax rates they chose were influenced by the tax rates in adjacent West-German municipalities. The results show that East-German municipalities mimicked the business tax rates of their western neighbors immediately after reunification, but not in later years. I find no evidence for interactions in property tax rates. These results are broadly consistent with models of social learning in fiscal policy.

Suggested Citation

  • Thushyanthan Baskaran, 2020. "Fiscal interactions in the short and the long run: evidence from German reunification [The tax gradient: spatial aspects of fiscal competition]," Journal of Economic Geography, Oxford University Press, vol. 20(3), pages 711-732.
    • Handle: RePEc:oup:jecgeo:v:20:y:2020:i:3:p:711-732.
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    File URL: http://hdl.handle.net/10.1093/jeg/lby068
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    Citations

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    Cited by:

    1. Massimiliano Ferraresi & Massimiliano Mazzanti & Matteo Mazzarano & Leonzio Rizzo & Riccardo Secomandi, 2020. "Political cycles and yardstick competition in the recycling of waste. Evidence from Italian provinces," Working papers 93, Società Italiana di Economia Pubblica.
    2. Ferraresi Massimiliano, 2021. "Political Budget Cycle, Tax Collection, and Yardstick Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(3), pages 1149-1161, July.
    3. Ferraresi, Massimiliano, 2023. "JUE Insight: Immigrants, social transfers for education, and spatial interactions," Journal of Urban Economics, Elsevier, vol. 136(C).
    4. Tao, Peng & Gong, Feng & Zhu, Kaiyue, 2023. "Tax competition among local governments: Evidence from the spillovers of location-based tax incentives in China," China Economic Review, Elsevier, vol. 82(C).

    More about this item

    Keywords

    Strategic interactions; tax mimicking; business taxes; property taxes; German reunification;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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