Are Local Tax Rates Strategic Complements or Substitutes?

Konferenzbeitrag

The identification of strategic interactions among local governments is typically plagued by endogeneity problems. This paper proposes a quasi-experimental strategy to identify independent personal income tax setting by Swiss municipalities making use of the multi-tier federal system. State (cantonal) borders spatially bound the effects of canton-level fiscal reforms in areas that are otherwise highly integrated. Fiscal reforms at the canton level provide an exogenous source of variation in municipal tax rates, and are thus a valid instrument to identify strategic interactions among municipalities located at a cantonal border. In contrast to most of the existing empirical literature, I find that tax reaction functions have a negative slope and that taxes rates are strategic substitutes rather than strategic complements. This is compatible with a model of local tax setting in which governments primarily target expenditure rather than tax receipts.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: 52nd Congress of the European Regional Science Association: "Regions in Motion - Breaking the Path", 21-25 August 2012, Bratislava, Slovakia

Classification and Topics

• Classification: Wirtschaft ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; State and Local Taxation, Subsidies, and Revenue ; Intergovernmental Relations; Federalism; Secession
• Subject: tax competition ; fiscal federalism

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Parchet, Raphael
• Event: Veröffentlichung
• (who): European Regional Science Association (ERSA)
• (where): Louvain-la-Neuve
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/120556
• Last update: 10.03.2025, 11:43 AM CET