Actualidad

Abstract: In this paper we carry out an empirical analysis in order to identify if Spanish local authorities strategically react to tax setting behaviour by neighbouring municipalities. We focus on the car ownership tax, which represents 11% of local tax revenue, and has been subject to important changes by some municipalities in recent years. The empirical model estimates a different slope of the municipal tax reaction function for each province. Our results provide evidence of significant tax competition in most provinces, but with significant geographical heterogeneity. In a second stage, we empirically relate the intensity of tax competition to the number of municipal jurisdictions in each province (directly) and their availability of vertical transfers and property tax revenues (indirectly).