Tiebout Competition, Yardstick Competition, and Tax Instrument Choice: Evidence from Ohio School Districts
Public Finance Review, Vol. 38, No. 6, pp. 710-737, 2010
37 Pages Posted: 15 Dec 2010 Last revised: 22 Jul 2011
Date Written: January 5, 2010
Abstract
Previous research has shown that Tiebout-style fiscal competition among local governments reduces the likelihood of adopting income taxes. This literature has not yet considered the impact of yardstick competition on tax instrument choice. This paper employs spatial econometrics to test for yardstick competition in the decision to adopt an income tax. The results, based on Ohio school district data, indicate that school districts are more likely to adopt an income tax if their neighbors have already done so. While a negative correlation of Tiebout competition on district income tax adoption persists, controlling for spatial dependence reduces the statistical significance of the effect.
Keywords: interjurisdictional competition, tax structure, education finance
JEL Classification: H71
Suggested Citation: Suggested Citation
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