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Tax competition among local governments: evidence from a property tax reform in Finland

Lyytikainen, Teemu (2012) Tax competition among local governments: evidence from a property tax reform in Finland. Journal of Public Economics, 96 (7). pp. 584-595. ISSN 0047-2727

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Abstract

This paper uses a Finnish policy intervention to study tax competition among local governments. Changes in the statutory lower limits to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates in their neighboring municipalities. I do not find evidence of interdependence in property tax rates among Finnish municipalities. The results are in contrast to the earlier empirical literature, using data from other countries, that has mainly found positive interdependence in tax rates. I compare the causal estimates based on the policy change to the commonly used Spatial Lag estimates and Spatial Instrumental Variables estimates, which are based on highly restrictive assumptions. The comparisons suggest that the standard spatial econometrics methods may have a tendency to overestimate the degree of interdependence in tax rates.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-public...
Additional Information: © 2012 Elsevier
Library of Congress subject classification: D History General and Old World > DL Northern Europe. Scandinavia
H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
J Political Science > JS Local government Municipal government
Sets: Research centres and groups > Spatial Economics Research Centre
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 May 2012 08:47
URL: http://eprints.lse.ac.uk/43689/

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