Identifying Local Tax Mimicking: Administrative Borders and a Policy Reform
53 Pages Posted: 20 Jun 2013 Last revised: 2 Jul 2013
Date Written: June 18, 2013
This paper exploits an exogenous reform of the local fiscal equalization scheme in the German State of North Rhine-Westphalia to identify tax mimicking by municipalities in the neighboring state of Lower Saxony. The spatial lag regressions provide no evidence for the existence of strategic interactions in municipal business and property taxes. In contrast, traditional spatial lag regressions that rely on variation in neighbors’ demographic, political, or economic characteristics for identification provide strong evidence for strategic interactions. This pattern of results indicates that most of the extant literature overestimates the importance of local tax mimicking.
Keywords: Tax mimicking, business tax, property tax, intergovernmental equalization
JEL Classification: H20, H71, H77
Suggested Citation: Suggested Citation