Road tax interactions among local governments: a spatial panel data analysis of the French case over the period 1984–2000

This article contributes to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments via an indirect local tax on vehicles such as the road tax sticker and its analysis of interactions between direct and indirect local taxation. The main purpose of this article is to provide an empirical analysis of the reaction of road tax policy in a given French ‘department’ to changes in road tax policy in other ‘departments’. The analysis uses a novel panel data set covering the 96 French metropolitan ‘departments’ for the period from 1984 to 2000. First, the results confirm the presence of significant spatial interactions between French ‘departments’ due to the road tax sticker. Second, the estimation results also show that the business tax rate and/or the property tax rate on developed land are complements to the road tax sticker, whereas the residence tax rate and/or the property tax rate on undeveloped land are substitutes to the road tax instrument. Finally, I find that ‘departments’ with a larger, younger and older population set higher rates for the road tax sticker. The results are robust regarding alternative weight matrices.