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Identifying Tax-Setting Responses From Local Fiscal Policy Programs

Author

Listed:
  • Valeria Merlo
  • Andreas Schanbacher
  • Georg U. Thunecke
  • Georg Wamser

Abstract

This paper studies tax-policy interaction and competition among local governments for both mobile and immobile tax bases. We exploit exogenous changes in the local tax setting of German municipalities due to participation in state debt reduction pro- grams to learn about the size, scope and nature of strategic interaction among local governments. Our results suggest strong and significant tax-policy responses both in corporate and property tax rates. Based on these results, we calculate tax-response function gradients in a range of 0.30 to 0.69. Spatial, political, demographic, and administrative municipality characteristics all influence the tax response qualitatively and quantitatively.

Suggested Citation

  • Valeria Merlo & Andreas Schanbacher & Georg U. Thunecke & Georg Wamser, 2024. "Identifying Tax-Setting Responses From Local Fiscal Policy Programs," Working Papers tax-mpg-rps-2023-23, Max Planck Institute for Tax Law and Public Finance.
    • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2023-23
    as

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    File URL: http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2023-23.pdf
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    References listed on IDEAS

    as
    1. Felix Rösel, 2017. "The Political Economy of Fiscal Supervision and Budget Deficits: Evidence from Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 641-666, December.
    2. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, April.
    3. Fabrizio Colella & Rafael Lalive & Seyhun Orcan Sakalli & Mathias Thoenig, 2023. "acreg: Arbitrary correlation regression," Stata Journal, StataCorp LP, vol. 23(1), pages 119-147, March.
    4. Baskaran, Thushyanthan, 2014. "Identifying local tax mimicking with administrative borders and a policy reform," Journal of Public Economics, Elsevier, vol. 118(C), pages 41-51.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Local Public Finance; Tax Competition; Yardstick Competition; Spatial Interaction; Tax-Response Functions;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R59 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Other

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