English, Article, Journal or magazine article edition: Fiscal competition over taxes and public inputs - theory and evidence. Sebastian Hauptmeier; Ferdinand Mittermaier; Johannes Rincke

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Bookmark: http://trove.nla.gov.au/version/211386
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Fiscal competition over taxes and public inputs - theory and evidence.
Author
  • Sebastian Hauptmeier
  • Ferdinand Mittermaier
  • Johannes Rincke
Physical Description
  • preprint
Notes
  • RePEc:ecb:ecbwps:200901033
  • We set up a model to characterize the reaction functions of governments competing for mobile capital by simultaneously setting both the business tax rate as well as the level of provision of a productive public input. Using a rich data set of local jurisdictions, we then test the predictions of the model with respect to the nature of strategic interaction among governments. Our findings from efficient estimation of a system of spatially interrelated equations for both policy instruments support the notion that local governments use both the business tax rate and public inputs to compete for capital. In particular, we find that if neighbors cut their tax rates, governments try to restore competitiveness by lowering their own tax and increasing spending on public inputs. If neighbors provide more infrastructure, governments react by increasing their own spending on public inputs.
  • RePEc:ces:ceswps:_2499
  • We set up a model to characterize the reaction functions of governments competing for mobile capital by simultaneously setting both the business tax rate as well as the level of provision of a productive public input. Using a rich data set of local jurisdictions, we then test the predictions of the model with respect to the nature of strategic interaction among governments. Our findings from efficient estimation of a system of spatially interrelated equations for both policy instruments support the notion that local governments use both the business tax rate and public inputs to compete for capital. In particular, we find that if neighbors cut their tax rates, governments try to restore competitiveness by lowering their own tax and increasing spending on public inputs. If neighbors provide more infra-structure, governments react by increasing their own spending on public inputs. JEL Classification: H72, H77, C72.
  • Tax competition, public input competition, system estimation.
Language
  • English
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