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Strategic tax and public service competition among local governments

Author

Listed:
  • Lauridsen, Jørgen

    (Department of Business and Economics)

  • Nannerup, Niels

    (Department of Business and Economics)

  • Skak, Morten

    (Department of Business and Economics)

Abstract

Tax and public service competition between local governments concerning localisation of new residents is analysed in a setting of economic spillovers which means that also a neighbouring region will benefit from localisation via demand of residents in a border region, (a so-called host region). We identify two basic Nash-equilibrium outcomes of the analysed tax-game. In one of these outcomes local tax rates will be different across the regions – a fact that appears important for (future) empirical studies of local tax competition. Due to the lack of adequate theoretical modelling, studies in this field have often demonstrated spatial dependence of local policy variables without identifying the source of interaction between decision-makers. Our theoretical findings prove to be robust to a range of important expansions of the basic simple framework.

Suggested Citation

  • Lauridsen, Jørgen & Nannerup, Niels & Skak, Morten, 2011. "Strategic tax and public service competition among local governments," Discussion Papers on Economics 9/2011, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2011_009
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Local tax competition; household locational choice; spillover effects; Nash-equilibria;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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