Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/106988 
Year of Publication: 
2015
Series/Report no.: 
cege Discussion Papers No. 230
Publisher: 
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract: 
This paper uses the quasi-experiment of Germany´s reunification to identify local tax mimicking by municipalities in Eastern-Germany. After reunification, East-German municipalities were allowed to independently set, for the first time in decades, local business and property tax rates. I explore whether the tax rates chosen by East-German border municipalities were influenced by the tax rates of adjacent West-German municipalities. To obtain causal estimates, I rely on instrumental variables regressions within the spatial lag framework, using West-German border municipalities - tax rates in 1989 as instruments for their post-reunification tax rates. The results suggest that East-German municipalities mimicked business tax rates immediately after reunification, but not in later years. I find no evidence of mimicking for property taxes. These results indicate that mimicking is not an important determinant of local tax policy.
Subjects: 
tax mimicking
business taxes
property taxes
German reunification
JEL: 
H20
H71
H77
Document Type: 
Working Paper

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