The Beach: Tax Competition along the Italian Coasts

17 Pages Posted: 25 Feb 2022 Last revised: 15 Mar 2022

See all articles by Chiara Cavallero

Chiara Cavallero

Trento University; Sant’Anna School of Advanced Studies

Martin Zagler

University of Piemonte Orientale - Facoltà di Economia; Vienna University of Economics and Business - Department of Economics

Date Written: February 1, 2022

Abstract

Space: the final frontier. This paper seeks to understand the spatial dimension of tax competition. We provide two novel contributions to the literature on tax competition. First, we present a spatial model of tax competition, which is an adoption of the Hotelling model of imperfect competition in the linear city. We find that tax rates are strategic complementarities, as a change in taxes of one town will lead to a similar change of tax rates in neighboring towns. Second, we test the model with data from tourism taxes along the Italian coastline. We find that towns on the Thyrennian coast reduce their tax rates in order to attract tourists and additional tax base. We do not find a similar effect on the Adriatic coast, but we still see a reaction of tax rates, pointing to yardstick competition.

Keywords: Hotelling tax competition, Spatial econometrics

JEL Classification: H20, H71, H73

Suggested Citation

Cavallero, Chiara and Zagler, Martin, The Beach: Tax Competition along the Italian Coasts (February 1, 2022). WU International Taxation Research Paper Series No. 2022-06, Available at SSRN: https://ssrn.com/abstract=4041417 or http://dx.doi.org/10.2139/ssrn.4041417

Chiara Cavallero

Trento University ( email )

Sant’Anna School of Advanced Studies ( email )

Pisa

Martin Zagler (Contact Author)

University of Piemonte Orientale - Facoltà di Economia ( email )

Via Perrone, 18
Novara, 28100
Italy

Vienna University of Economics and Business - Department of Economics ( email )

Augasse 2-6
A-1090 Wien
Austria

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