Tax Competition Among Local Governments: Evidence from a Property Tax Reform in Finland
affiliation not provided to SSRN
August 31, 2011
Government Institute for Economic Research Working Paper No. 26
This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighboring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.
Number of Pages in PDF File: 46
Keywords: property tax, tax competition, fiscal interaction, instrumental variables, spatial econometrics
JEL Classification: H20, H71, H77working papers series
Date posted: September 12, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.313 seconds