Conference Agenda

Interjurisdictional competition is central to public finance, yet most empirical work studies a single policy instrument. This is at odds with fiscal federalism in practice, where lower-tier governments set multiple instruments simultaneously and interdependently. We study multi-instrument tax competition using German municipalities exploiting roughly 30,000 business tax and 37,000 property tax changes. Estimating a distributed lag model to identify policy response functions within and between municipalities and across tax instruments, we find strong evidence that business and property tax rates are strategic complements. Complementarities arise within municipalities, across municipalities within the same tax, and across municipalities across taxes. These results imply that standard within-instrument approaches can overstate the slope of the response function by attributing joint multi-instrument adjustment to strategic interaction in a single tax.

This paper analyzes how \emph{across-country} and \emph{within-country} inequality reshape international capital tax competition and the efficiency of public-good provision. We develop a general-equilibrium model with three large, asymmetric jurisdictions—Developing (D), Middle-Income (I), and High-Income (H)—in which a fixed world capital stock is perfectly mobile across locations while capital ownership is unevenly distributed across countries and concentrated within countries. Each country contains heterogeneous households differing in labor skills, capital holdings, and tax incidence. Governments finance a local public good using a source-based specific tax on capital employed domestically. The main contribution is a tractable characterization of decentralized Nash policies in which inequality maps into equilibrium tax and spending incentives through sufficient-statistic indices and a politically weighted net capital position. The interaction of within- and across-country inequality yields sharp regime predictions: underprovision is typical, but can be attenuated—or, for politically net-importing economies, potentially reversed—depending on ownership concentration and incidence.

Although spatial interactions are in principle dependent on networks, the empirical literature on tax competition has thus far used matrices of generic form to model policy reactions. We address this gap in the literature in two ways. First, we analyze the arguments of local policy makers in debates on local tax reforms. We find that local politicians reference peers selectively to suit the direction of their argument. On average, their statements are in line with their political party’s ideology, reflected in a preference for more equity or efficiency, respectively. However, the commonalities between the reference target and the municipality in question determine a set of references that are accepted across party lines. Second, we use this set of determinants to predict the network links as perceived by local politicians. Drawing upon a plausibly exogenous shock that affects a subset of peers, we analyze how tax reforms propagate in this network.

The literature in urban economics has highlighted the importance of urban amenities. This study shows that urban amenities also play a significant role in spatial tax competition. We incorporate urban consumption amenities into a spatial tax competition model in which regions compete for spatially mobile tax bases. In the model, consumers engage in cross-border shopping by purchasing goods in regions with lower tax rates. We find that the presence of urban amenities raises equilibrium tax rates not only in the region containing the city center but also in surrounding regions. This upward effect is heterogeneous across regions. Consequently, urban amenities mitigate tax competition and generally enhance the fiscal capacity of local governments. They may serve as an alternative to tax coordination or subsidies in addressing the inefficiency of low equilibrium tax rates under tax competition.