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Tax competition with intermunicipal cooperation

Author

Listed:
  • David Agrawal

    (UK - University of Kentucky)

  • Marie-Laure Breuillé

    (CESAER - Centre d'Economie et de Sociologie Rurales Appliquées à l'Agriculture et aux Espaces Ruraux - AgroSup Dijon - Institut National Supérieur des Sciences Agronomiques, de l'Alimentation et de l'Environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Julie Le Gallo

    (CESAER - Centre d'Economie et de Sociologie Rurales Appliquées à l'Agriculture et aux Espaces Ruraux - AgroSup Dijon - Institut National Supérieur des Sciences Agronomiques, de l'Alimentation et de l'Environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We study local tax competition when municipalities can voluntarily cooperate. We compare the intensity of interjurisdictional policy interdependence between competing municipalities within the same “establishment for inter-municipal cooperation” (EIMC) and competing municipalities outside of the cooperative unit. To resolve the endogeneity of the decision to cooperate we apply the approach of Kelejian and Piras (2014). The strategic response to the average tax rate among peer members of the same EIMC is less intense than the response to the average tax rate of municipalities outside of the cooperative unit. A one percentage point decrease in the average tax rate of non-members lowers the own-jurisdiction tax rate by 0.58 percentage points, while a one unit decrease in the tax rate of towns within the EIMC lowers the own-jurisdiction rate by 0.31 percentage points. Our empirical methods can be used to study strategic interactions within other cooperative groups, including supra-national institutions such as the European Union.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • David Agrawal & Marie-Laure Breuillé & Julie Le Gallo, 2020. "Tax competition with intermunicipal cooperation," Post-Print hal-02949334, HAL.
    • Handle: RePEc:hal:journl:hal-02949334
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    Cited by:

    1. Banaszewska, Monika & Bischoff, Ivo & Bode, Eva & Chodakowska, Aneta, 2022. "Does inter-municipal cooperation help improve local economic performance? – Evidence from Poland," Regional Science and Urban Economics, Elsevier, vol. 92(C).
    2. Kim, Donghyuk, 2023. "Economic spillovers and political payoffs in government competition for firms: Evidence from the Kansas City Border War," Journal of Public Economics, Elsevier, vol. 224(C).

    More about this item

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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