Competition with Multiple Policy Instruments

• In Event: Tax Competition and Fiscal Externalities

Abstract

This paper investigates multi-dimensional tax policy spillovers within and between jurisdictions. Leveraging the substantial fiscal autonomy of German municipalities in local tax setting, we exploit quasi-experimental variation arising from higher-level policy changes to identify causal policy responses between tax instruments within and across jurisdictions. Employing a Difference-in-Differences approach, we examine the interaction between business and property tax rates. Our findings reveal that business and property tax rates are strategic complements, both within municipalities and across neighboring jurisdictions. These results highlight the multi-instrument nature of local fiscal competition and suggest important implications for the design of intergovernmental tax policy frameworks.

Authors

• David Agrawal, University of California, Irvine

• Sebastian Siegloch, University of Cologne

• Georg Thunecke, Max Planck Institute for Tax Law and Public Finance