Spending interactions, France, Local government, Dynamic panel data, D72, H2, H7,

We study the business tax ("taxe professionnelle") behavior of the intermediate level (department) of local government in France and test in the same model the two hypotheses that department tax rates are explained by upper tier (region) tax rates and by tax rates chosen by other departments. We first reject the hypothesis of tax interactions between departments and regions, the two upper levels of local governments. Second, we provide evidence that business tax interactions among departments are significant. Including the vertical dimension in the estimated model does not lead to a decrease in the horizontal tax interactions parameter, nor to its nonsignificance. Copyright Blackwell Publishing, Inc. 2007

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Fiscal competition between governments to attract investment can take the form of business tax rebates, productivity-enhancing public infrastructure, tax holidays, accelerated depreciation allowances or loss carry-forward for income tax purposes. This paper surveys the recent theoretical and empirical economic literature and deals with three issues. First, it examines if the theoretical literature on fiscal competition and bidding races contribute to a better understanding of these phenomena in developing countries. Second, it examines whether FDI inflows in developing countries are sensitive to fiscal incentives and if there is empirical evidence of strategic behavior by developing country governments in order to attract FDI. Finally, it reviews the literature's conclusions about fiscal competition among local governments in developing countries.