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Do Local Governments Engage in Strategic Property- Tax competition?

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  • Luz Amparo Saavedra

Abstract

This paper uses spatial econometric methods to investigate property-tax competition among local governments. The theoretical model is drawn from the literature on tax competition, in which local jurisdictions choose property -tax rates taking into account the migraton of mobile capital in response to tax differentials. Using a "spatial lag" econometric model, the paper estimates the reaction function of the representative community, which relates the community's property - tax rate to its own characteristics and to the tax rates in competing communities. A nonzero reaction -function slope indicates the presence of strategic interaction in the choice of tax rates. The estimation uses cross-section data on property taxes and other socio-economic variables for cities in the Boston metropolitan area. The results, wich are presented for two periods before and after imposition of Proposition 2 1/2 (a tax limitation measure), indicate the presence of strategic interaction.

Suggested Citation

  • Luz Amparo Saavedra, 2000. "Do Local Governments Engage in Strategic Property- Tax competition?," Borradores de Economia 139, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:139
    DOI: 10.32468/be.139
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    2. Quentin Frère & Hakim Hammadou & Sonia Paty, 2011. "The range of local public services and population size: Is there a “zoo effect” in French jurisdictions?," Recherches économiques de Louvain, De Boeck Université, vol. 77(2), pages 87-104.
    3. Jason M. Fletcher & Matthew N. Murray, 2006. "Competition over the Tax Base in the State Sales Tax," Public Finance Review, , vol. 34(3), pages 258-281, May.
    4. Buettner, Thiess, 2001. "Fiscal externalities in local tax competition: empirical evidence from a panel of German jurisdictions," ZEW Discussion Papers 01-11, ZEW - Leibniz Centre for European Economic Research.

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