Tax Competition Among Municipal Governments

Abstract

This research examines the incidence of property and sales tax competition among municipal governments in the Chicago metropolitan region and investigates whether the underlying mechanism is exit or voice. First, the research estimates a model with a spatial lag component that relates each municipality's tax or revenue burden to that of its neighbors, controlling for other factors. The results show that tax competition exists for property taxes, which suggests that the competition is based on voice rather than exit. Second, assessment of preferences and attitudes toward sales and property taxes and competition also demonstrates the importance of voice in establishing tax rates and levies.

Horizontal and Vertical Tax Competition in Florida Local Governments

“…Using data of seventy cities in the Boston metropolitan area, Brueckner and Saavedra (2001) confirm that strategic tax competition existed in the Boston metropolitan area in the pretax limitation era and also after the proposition 2½, but in a less pervasive manner. Hendrick, Wu, and Jacob (2007) also find that tax competition exists for property taxes among municipal governments in the Chicago metropolitan area.…”

Minding Your Neighborhood: The Spatial Context of Local Redistribution*

“…The results confirm the hypothesis that states are reacting to the benefit levels of neighboring states when setting their own levels. Hendrick, Wu, and Jacob (2007) use a spatial‐lag model to show positive spatial autocorrelation among property tax rates in the Chicago metropolitan area and no spatial autocorrelation with sales tax rates. Finally, Craw (2006) tests a hypothesis with spatial implications—that monopoly power should allow local governments to redistribute without fearing the loss of their tax bases—but finds minimal support for it.…”

Strategic fiscal interactions among local Governments in Colombia

“…Based on their theoretical framework of exit and voice competition, Hendrick, Wu, and Jacob (2007) suggest that if mobility (exit) is the primary driver of the observed fiscal com petition, then one might find tax competition among municipal governments for taxes levied on highly mobile tax bases (like the ICA business tax in Colombia). Conversely, if the ac countability (voice) mechanism is the primary driver, then competition should be greater among municipal governments for the taxes that are more visible and salient to voters and other taxpayers than other types of revenue sources, such as, at the local level, property taxes (Bahl and Linn, 1998;Bird and Slack, 2004;Bahl, Martínez-Vázquez, and Youngman, 2010).…”