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

Abstract

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

Baskaran, Thushyanthan, Identifying Local Tax Mimicking: Administrative Borders and a Policy Reform (June 18, 2013). Available at SSRN: https://ssrn.com/abstract=2281493 or http://dx.doi.org/10.2139/ssrn.2281493

Thushyanthan Baskaran (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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