Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245457 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9276
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper exploits the multi-tiered structure of personal income taxation in Italy to investigate within-tier (horizontal) and between-tiers (vertical and diagonal) fiscal externalities. Estimation of an unrestricted income tax reaction function on municipalities located at internal regional borders using o¤-border Wald-type grouping variables as well as the staggered schedule of mayoral elections as instruments for endogenous spatial lags reveals strong positive spatial dependence in municipal tax rates. On the other hand, there is no evidence of a response of municipal tax rates to regional tax policies, suggesting that border discontinuity estimators that rely on consolidated spatial specifications (lower-plus-upper-tier tax rates) impose restrictions on the parameters of the reaction function that are unwarranted in these circumstances.
Subjects: 
fiscal externalities
income taxation
grouping instrumental variable
border discontinuity estimator
JEL: 
H24
H71
H73
Document Type: 
Working Paper
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