Conference Agenda

Overview and details of the sessions of this online conference.

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Session Overview
B05: Strategic Interactions
Wednesday, 18/Aug/2021:
12:30pm - 2:00pm

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12:30pm - 12:52pm

A Race to the Top? Staggered Electoral Cycles and Strategic Interactions in Business Taxes

Sebastian Garmann

Bundesrechnungshof, Germany

Many theories predict strategic interactions in setting taxes across neighboring jurisdictions, but few papers use quasi-experimental settings for causal empirical evidence. This paper exploits staggered elections, which create variation in neighbor’s tax rates that is driven by election-year manipulations rather than reverse causality or spatially correlated omitted variables. Municipalities only mimic the tax rate increases that occur in their neighbor’s post-election years, but not the tax rate decreases that occur in election years. Consistent with yardstick competition, tax increases in neighboring municipalities create a window of opportunity for politicians to implement fiscally necessary tax increases in their own municipalities.

Garmann-A Race to the Top Staggered Electoral Cycles and Strategic Interactions-294.pdf

12:52pm - 1:15pm

Vertical Fiscal Imbalance and Regional Competition: A spatial data analysis

Jiakai Zhang1, Timothy Goodspeed1,2

1The Graduate Center, The City University of New York; 2Hunter College, The City University of New York

This paper adds to the literature by examining fiscal competition and deficit financing by local governments in a developing country, China. We examine a unique revenue source in China, land-use premiums (a type of property tax), in a panel dataset consolidated at the prefectural level from 2006 to 2016. Our results indicate that fiscal competition in land-use premiums exists and is stronger among wealthier than poorer local governments, a result that supports the view of Cai and Triesman (2005) that competition among asymmetrically endowed regions can lead to less discipline. Moreover, we find higher local deficits are associated with lower land-use premiums, a result that suggests that the local government does not fill any fiscal gap with own revenues.

Zhang-Vertical Fiscal Imbalance and Regional Competition-360.pdf

1:15pm - 1:37pm

Taxes, Commuting and Spillover in the Metropolis

Tidiane Ly

Universita della Svizerra italiana, Switzerland

This paper studies local governments' public policies in a metropolitan area plagued by commuting-induced congestion, where both residents and workers consume local public goods. We develop a new spatial sub-metropolitan tax competition model which features a central city surrounded by suburban towns linked by mobile capital and mobile residents who commute to work. We show that Pareto-efficiency is achieved if towns can retain their workers using labor subsidies. Otherwise, traffic congestion in the city is inefficiently high and local governments respond by setting inefficient public policies:

(i) the city over-taxes capital and under-taxes residents, which leads to too little capital and too many residents in the city;

(ii) local public goods are under-provided in the city and over-provided in the towns.

Ly-Taxes, Commuting and Spillover in the Metropolis-447.pdf

1:37pm - 2:00pm

Tax Competition Effects Of A Minimum Tax Rate: Empirical Evidence From German Municipalities

Thiess Büttner1,2, Maximilian Pöhnlein1

1Friedrich-Alexander Universität Erlangen-Nürnberg, Germany; 2CESifo

This paper explores the effects of a minimum tax rate on the tax rate distribution of a local business tax. We test whether and how competing municipalities responded to the introduction of a federal law that required low-tax municipalities in Germany to set a tax rate of at least 10% on firms' taxable profits. We use a spatial econometric approach that enables us to distinguish treated and not-treated municipalities based on the distance to jurisdictions that were forced to increase their tax rate. Our results show that most municipalities did not change their tax policy in response to a law-induced tax rate change in their local neighborhood. Significant treatment effects are only found for high-tax municipalities which responded by setting lower tax rates.

Büttner-Tax Competition Effects Of A Minimum Tax Rate-419.pdf

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