Are Local Tax Rates Strategic Complements or Strategic Substitutes?

• 成果类型: Article
• 署名作者: Parchet, Raphael
• 署名单位: Universita della Svizzera Italiana; Universita della Svizzera Italiana
• 刊物名称: AMERICAN ECONOMIC JOURNAL-ECONOMIC POLICY
• ISSN/ISSBN: 1945-7731
• DOI: 10.1257/pol.20150206
• 发表日期: 2019
• 页码: 189-224
• 关键词: consumption commitments; fiscal competition; governments; externalities; mimicking; POLICY

摘要

The identification of strategic interactions among local governments is typically plagued by endogeneity problems. I exploit the fact that local jurisdictions located close to a state border have some neighbors in another state and instrument the tax rate of neighbor jurisdictions with the state-level tax rate of the neighboring state. I use this instrument to identify strategic personal income tax setting by local jurisdictions in Switzerland and find that tax rates are strategic substitutes. I then develop a residence-based personal income tax competition model and show that tax rates are strategic substitutes if the elasticity of the marginal utility of the public good with respect to the tax rate is above one. This is notably the case in the presence of economies of scale in the public good provision.