Do Local Governments Engage in Strategic Property-Tax Competition?

Posted: 20 Sep 2001

See all articles by Jan K. Brueckner

Jan K. Brueckner

University of California, Irvine - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luz Amparo Saavedra

University of St. Thomas - Department of Economics

Abstract

This paper uses spatial econometric methods to investigate property-tax competition among local governments. The theoretical model is drawn from the literature on tax competition, in which local jurisdictions choose property-tax rates taking into account the migration of mobile capital in response to tax differentials. Using a "spatial lag" econometric model, the paper estimates the reaction function of the representative community, which relates the community's property-tax rate to its own characteristics and to the tax rates in competing communities. A nonzero reaction-function slope indicates the presence of strategic interaction in the choice of tax rates. The estimation uses cross-section data on property taxes and other socio-economic variables for cities in the Boston metropolitan area. The results, which are presented for two periods before and after imposition of Proposition 2 1/2 (a tax limitation measure), indicate the presence of strategic interaction.

Suggested Citation

Brueckner, Jan K. and Amparo Saavedra, Luz, Do Local Governments Engage in Strategic Property-Tax Competition?. Available at SSRN: https://ssrn.com/abstract=280009

Jan K. Brueckner (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Luz Amparo Saavedra

University of St. Thomas - Department of Economics ( email )

St. Paul, MN 55105
United States

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