Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305576 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11334
Publisher: 
CESifo GmbH, Munich
Abstract: 
We study local tax competition when municipalities can voluntarily cooperate. We compare the intensity of interjurisdictional policy interdependence between competing municipalities within the same “establishment for inter-municipal cooperation” (EIMC) and competing municipalities outside of the cooperative unit. To resolve the endogeneity of the decision to cooperate we apply the approach of Kelejian and Piras (2014). The strategic response to the average tax rate among peer members of the same EIMC is less intense than the response to the average tax rate of municipalities outside of the cooperative unit. A one percentage point decrease in the average tax rate of non-members lowers the own-jurisdiction tax rate by 0.58 percentage points, while a one unit decrease in the tax rate of towns within the EIMC lowers the own-jurisdiction rate by 0.31 percentage points. Our empirical methods can be used to study strategic interactions within other cooperative groups, including supra-national institutions such as the European Union.
Subjects: 
tax competition
intermunicipal cooperation
spatial autoregressive models
endogenous weight matrix
local public finance
networks
JEL: 
C20
H20
H70
R50
Document Type: 
Working Paper
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