Tax and the city - a theory of local tax competition and evidence for Germany


Janeba, Eckhard ; Osterloh, Steffen

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URL: https://ub-madoc.bib.uni-mannheim.de/31382
URN: urn:nbn:de:bsz:180-madoc-313823
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: ZEW Discussion Papers
Volume: 12-005
Place of publication: Mannheim
Edition: Version January 2012
Publication language: English
Institution: School of Law and Economics > VWL, insbes. Finanzwissenschaft u. Wirtschaftspolitik (Janeba)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H71 , H73 , H77,
Subject headings (SWD): Deutschland , Gemeindesteuer , Steuerwettbewerb , Großstadt , Standortwettbewerb , Theorie
Keywords (English): Local tax competition , survey , intensity of competition , asymmetric tax competition
Abstract: Despite the well-developed empirical literature on local tax competition, little is known about the actual spatial structure of inter-municipal competition. Assuming that competition takes place only among neighbours (as in the empirical literature) is at odds with the theoretical approaches where all jurisdictions compete simultaneously. In this paper we use a survey conducted among mayors in the German state of Baden-Württemberg to show that the perceived intensity of competition for firms varies considerably between jurisdictions and can mainly be explained by the size and location of the jurisdiction. Based on these findings, we develop a sequential tax competition model in which urban centres compete with other urban centres and rural jurisdictions in their own neighbourhood. This model predicts that larger jurisdictions do not necessarily rely more on capital taxes; in case they face strong competition with more distant competitors, larger cities even have lower capital taxes. In addition, we discuss how the model compares to a standard simultaneous approach and show that results from our sequential model are in line with trends in local taxation in Baden-Württemberg.

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Janeba, Eckhard ; Osterloh, Steffen (2012) Tax and the city - a theory of local tax competition and evidence for Germany. Open Access ZEW Discussion Papers Mannheim 12-005 [Working paper]
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