Tax Interactions among Belgian Municipalities: Does Language Matter?

27 Pages Posted: 26 Feb 2009

See all articles by Marcel Gerard

Marcel Gerard

Facultes Universitaires Catholiques de Mons (FUCAM); CESifo (Center for Economic Studies and Ifo Institute)

Hubert Jayet

University of Lille I

Sonia Paty

University of Angers - Institute of Economic Theory and Analysis (GATE)

Date Written: February 1, 2009

Abstract

This paper tests the existence of strategic interactions among municipalities using a panel of Belgian local tax rates from 1985 to 2004. A special emphasis is put on the role of the language spoken in the various municipalities. Our results first confirm previous findings for Belgium suggesting that municipalities interact with each other over the two main local tax rates, the local surcharge on the (labor) income tax rate and the local surcharge on the property tax. Using tools of spatial econometrics and an original methodology for specifying weights matrices, we find out that municipalities are sensitive to tax rates set by their close neighbors only. We also reject the hypothesis that the language does not matter: in the within model and for the local income tax rate, the intensity of interactions is shown to be lower between municipalities speaking different languages than between municipalities speaking the same language. That observation is particularly relevant for today Belgium and might be viewed as a contribution to the ongoing debate on the regionalisation or partial decentralization of some taxes.

Keywords: tax interactions, panel data, spatial econometrics, local tax rates, tax competition, yardstick competition

JEL Classification: H24, H31, H71

Suggested Citation

Gerard, Marcel and Jayet, Hubert and Paty, Sonia, Tax Interactions among Belgian Municipalities: Does Language Matter? (February 1, 2009). CESifo Working Paper Series No. 2558. Available at SSRN: https://ssrn.com/abstract=1349785

Marcel Gerard (Contact Author)

Facultes Universitaires Catholiques de Mons (FUCAM) ( email )

Chaussee de Binche, 151
Mons 7000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Hubert Jayet

University of Lille I ( email )

104, avenue du peuple Belge
Villeneuve d'Ascq Cedex, 59655
France

Sonia Paty

University of Angers - Institute of Economic Theory and Analysis (GATE) ( email )

93, chemin des Mouilles
Monnaie et Finance at Lyon
69130 Ecully cedex
France

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