The revenue and base effects of local tax hikes: Evidence from a quasi-experiment

Arbeitspapier

This paper studies the revenue and base effects of local property and business tax hikes using a natural experiment in the German state of North Rhine-Westphalia (NRW). Due to a reform of the local equalization scheme in 2003, a set of municipalities in NRW increased their local tax rates by one to two percentage points while the remaining municipalities kept their rates constant. Using this variation across municipalities and over time to implement a difference-in-differences design covering the period 1995-2010, I find that property tax hikes have a revenue elasticity of unity and no adverse base effects. Business tax hikes have no discernible base effects but also no statistically significant effect on revenues. Furthermore, the results suggest that the tax hikes have no effect on broader economic outcomes such as local employment, firms´ wage bill, and property prices. Overall, increasing local tax rates by one to two percentage points does not seem to affect the local economy adversely.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cege Discussion Papers ; No. 257

Classification and Topics

• Classification: Wirtschaft ; Taxation, Subsidies, and Revenue: General ; State and Local Taxation, Subsidies, and Revenue ; Intergovernmental Relations; Federalism; Secession
• Subject: tax hikes ; tax base effects ; local business taxes ; local property taxes

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baskaran, Thushyanthan
• Event: Veröffentlichung
• (who): University of Göttingen, Center for European, Governance and Economic Development Research (cege)
• (where): Göttingen
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/118657
• Last update: 10.03.2025, 11:44 AM CET