Let's Stay in Touch - Evidence on the Role of Social Learning in Local Tax Interactions

42 Pages Posted: 4 Jan 2016

See all articles by Sebastian Blesse

Sebastian Blesse

Deutsche Bundesbank - Research Department

Thorsten Martin

University of Potsdam

Date Written: November 2015


This paper exploits detailed information on local political and socioeconomic networks and a reform of local fiscal equalization in North Rhine-Westphalia (NRW) to identify the role of learning in local tax rate interactions. Using this policy change in spatial lag IV regressions, we find that institutions like counties and jointly used administrations yield signifficant positive tax interactions whereas geographical neighbors do not react to each other. Common local media trigger tax policy interactions as well. Short-lived reform effects support our findings that social learning within certain networks intensifies tax rate interactions via coordination of local decision makers.

Keywords: Tax mimicking, Local business tax, Social learning, Institutions, Tax competition, Fiscal equalization schemes

JEL Classification: H20, H71, H77

Suggested Citation

Blesse, Sebastian and Martin, Thorsten, Let's Stay in Touch - Evidence on the Role of Social Learning in Local Tax Interactions (November 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-081, Available at SSRN: https://ssrn.com/abstract=2710651 or http://dx.doi.org/10.2139/ssrn.2710651

Sebastian Blesse (Contact Author)

Deutsche Bundesbank - Research Department ( email )

PO Box 10 06 02
D60006 Frankfurt

Thorsten Martin

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482

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