Journal of Public Economics · 2023 · Georg Thunecke、Andreas Schanbacher、Valeria Merlo、Georg Wamser
Abstract
This paper studies tax policy interaction among local governments for both mobile and immobile tax bases. We exploit exogenous changes in the local tax setting of German municipalities due to participation in state debt reduction programs to learn about the size, scope and nature of strategic interaction among local governments. Our results suggest strong and significant tax policy responses both in corporate as well as in property tax rates. Based on these results, the tax response function gradients are in the range of 0.30 to 0.69, depending on the tax instrument and state. Spatial, political, demographic, and administrative municipality characteristics all influence the size of the tax response.