Tax Competition with Intermunicipal Cooperation

50 Pages Posted: 20 Apr 2020 Last revised: 21 Jan 2021

See all articles by David R. Agrawal

David R. Agrawal

University of Kentucky - James W. Martin School of Public Policy and Administration; University of Kentucky - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Marie-Laure Breuillé

University of Burgundy Franche-Comté

Julie Le Gallo

AgroSup Dijon

Date Written: March 24, 2020

Abstract

We study local tax competition when municipalities can voluntarily cooperate with neighboring jurisdictions. In France, the strongest form of cooperation among municipalities occurs by forming an “establishment for inter-municipal cooperation” (EIMC). We study how interjurisdictional policy interdependence differs between competing municipalities within the same EIMC and competing municipalities outside of the cooperative unit. We apply the estimation strategy of Kelejian and Piras (2014) to resolve the endogeneity of the decision to cooperate with other municipalities. We find that strategic interactions among peer members of the same EIMC are less intense than strategic interactions with municipalities outside of the cooperative unit. Our empirical methods can be used to study strategic interactions with other cooperative groups, such as international trade agreements or firm distribution networks.

Keywords: tax competition, intermunicipal cooperation, spatial autoregressive models, endogenous weight matrix, local public finance, networks

JEL Classification: C2, H2, H7, R5

Suggested Citation

Agrawal, David R. and Breuillé, Marie-Laure and Le Gallo, Julie, Tax Competition with Intermunicipal Cooperation (March 24, 2020). Available at SSRN: https://ssrn.com/abstract=3560611 or http://dx.doi.org/10.2139/ssrn.3560611

David R. Agrawal (Contact Author)

University of Kentucky - James W. Martin School of Public Policy and Administration ( email )

433 Patterson Office Tower
Lexington, KY 40506-0027
United States
859-257-8608 (Phone)

HOME PAGE: http://www.uky.edu/~drag222/

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

HOME PAGE: http://www.uky.edu/~drag222/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.uky.edu/~drag222/

Marie-Laure Breuillé

University of Burgundy Franche-Comté ( email )

45 D, Av. de l’Observatoire
Besancon, Besancon F-25000
France

Julie Le Gallo

AgroSup Dijon ( email )

26 Boulevard Petitjean
Dijon, 21000
France

HOME PAGE: http://https://sites.google.com/site/legallopage/

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