Skip to main content
SpringerLink
Log in

On Spatial Public Finance Empirics

  • Published:
International Tax and Public Finance Aims and scope Submit manuscript

Abstract

This paper focuses on the empirical specification of theoretical models of strategic interaction that give rise to a spatial pattern in local government expenditures and revenues. It shows that estimation of a reduced form inter-jurisdictional reaction function might not by itself allow to discriminate among competing strategic interaction theories. A review of the recent empirical literature suggests that exploring in more depth the specific empirical implications of alternative theoretical models, as well as fully exploiting the institutional features of multi-tiered government structures and local electoral systems, can help identify the structural model generating the observed spatial auto-correlation in policy variables.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Altshuler, R. and T. Goodspeed. (2002). “Follow the Leader? Evidence on European and US Tax Competition,” Rutgers University Department of Economics Working Paper Series, 2002–26.

  • Andersson, L., T. Aronsson and M. Wikstrom. (2004). “Testing for Vertical Fiscal Externalities,” International Tax and Public Finance 11, 243–263.

    Google Scholar 

  • Anselin, L. (1988). Spatial Econometrics: Methods and Models. Dordrecht: Kluwer Academic.

    Google Scholar 

  • Aronsson, T., J. Lundberg and M. Wikstrom. (2000). “The Impact of Regional Public Expenditures on the Local Decision to Spend,” Regional Science and Urban Economics 30, 185–202.

    Google Scholar 

  • Baicker, K. (2005). “The Spillover Effects of State Spending,” Journal of Public Economics 89, 529–544.

    Google Scholar 

  • Berry, W., R. Fording and R. Hanson. (2003). “Reassessing the ‘Race to the Bottom’ in State Welfare Policy,” Journal of Politics 65, 327–349.

    Google Scholar 

  • Besley, T. and A. Case. (1995). “Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition,” American Economic Review 85, 25–45.

    Google Scholar 

  • Besley, T. and M. Smart. (2002). “Does Tax Competition Raise Voter Welfare?” CEPR Discussion Paper No. 3131.

  • Bivand, R. and S. Szymanski. (1997). “Spatial Dependence through Local Yardstick Competition: Theory and Testing,” Economics Letters 55, 257–265.

    Google Scholar 

  • Bivand, R. and S. Szymanski. (2000). “Modelling the Spatial Impact of the Introduction of Compulsive Competitive Tendering,” Regional Science and Urban Economics 30, 203–219.

    Google Scholar 

  • Bordignon, M., F. Cerniglia and F. Revelli. (2003). “In Search of Yardstick Competition: A Spatial Analysis of Italian Municipality Property Tax Setting,” Journal of Urban Economics 54, 199–217.

    Google Scholar 

  • Bordignon, M., F. Cerniglia and F. Revelli. (2004). “Yardstick Competition in Intergovernmental Relationships: Theory and Empirical Predictions,” Economics Letters 83, 325–333.

    Google Scholar 

  • Brett, C. and J. Pinkse. (2000). “The Determinants of Municipal Tax Rates in British Columbia,” Canadian Journal of Economics 33, 695–714.

    Google Scholar 

  • Brueckner, J. (1998). “Testing for Strategic Interaction among Local Governments: The Case of Growth Controls,” Journal of Urban Economics 44, 438–467.

    Google Scholar 

  • Brueckner, J. (2000). “Welfare Reform and the Race to the Bottom: Theory and Evidence,” Southern Economic Journal 66, 505–525.

    Google Scholar 

  • Brueckner, J. (2003). “Strategic Interaction Among Governments: An Overview of Empirical Studies,” International Regional Science Review 26, 175–188.

    Google Scholar 

  • Brueckner, J. and L. Saavedra. (2001). “Do Local Governments Engage in Strategic Property Tax Competition?” National Tax Journal 54, 203–229.

    Google Scholar 

  • Buettner, T. (2001). “Local Business Taxation and Competition for Capital: The Choice of the Tax Rate,” Regional Science and Urban Economics 31, 215–245.

    Google Scholar 

  • Buettner, T. (2003). “Tax Base Effects and Fiscal Externalities of Local Capital Taxation: Evidence from a Panel of German Jurisdictions,” Journal of Urban Economics 54, 110–128.

    Google Scholar 

  • Case, A. (1991). “Spatial Patterns in Household Demand,” Econometrica 59, 953–965.

    Google Scholar 

  • Case, A. (1993). “Interstate Tax Competition after TRA86,” Journal of Policy Analysis and Management 12, 136–148.

    Google Scholar 

  • Case, A., J. Hines and H. Rosen. (1993). “Budget Spillovers and Fiscal Policy Interdependence,” Journal of Public Economics 52, 285–307.

    Google Scholar 

  • Dahlberg, M. and K. Edmark. (2004). “Is there a ‘Race to the Bottom’ in the Setting of Welfare Benefit Levels? Evidence from a Policy Intervention,” Uppsala University, Department of Economics Working Paper Series, No.19.

  • Devereux, M., R. Griffith and A. Klemm. (2002). “Corporate Income Tax Reforms and International Tax Competition,” Economic Policy: A European Forum 17, 450–495.

    Google Scholar 

  • Devereux, M., B. Lockwood and M. Redoano. (2002). “Do Countries Compete Over Corporate Tax Rates?” CEPR Discussion Paper No. 3400.

  • Devereux, M., B. Lockwood and M. Redoano. (2004). “Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence from the USA,” Warwick Economic Research Papers No. 704.

  • Esteller-Moré, A. and A. Solé-Ollé. (2001). “Vertical Income Tax Externalities and Fiscal Interdependence: Evidence from the US,” Regional Science and Urban Economics 31, 247–272.

    Google Scholar 

  • Esteller-Moré, A. and A. Solé-Ollé. (2002). “Tax Setting in a Federal System: The Case of Personal Income Taxation in Canada,” International Tax and Public Finance 9, 235–257.

    Google Scholar 

  • Evers, M., R. A. de Mooij and H. Vollebergh. (2004). “Tax Competition Under Minimum Rates: The Case of European Diesel Excises,” Tinbergen Institute Discussion Paper 04–062/3.

  • Feld, L. (1997). “Exit, Voice and Income Taxes: The Loyalty of Voters,” European Journal of Political Economy 13, 455–478.

    Google Scholar 

  • Feld, L. and G. Kirchgassner. (2001). “Income Tax Competition at the State and Local Level in Switzerland,” Regional Science and Urban Economics 31, 181–213.

    Google Scholar 

  • Figlio, D., V. Kolpin and W. Reid. (1999). “Do States Play Welfare Games?” Journal of Urban Economics 46, 437–454.

    Google Scholar 

  • Fiva, J. and J. Rattso. (2004). “Welfare Competition in Norway,” Norwegian University of Science and Technology Working Paper Series, No.7.

  • Fredriksson, P. and D. Millimet. (2002a). “Strategic Interaction and the Determination of Environmental Policy across US States,” Journal of Urban Economics 51, 101–122.

    Google Scholar 

  • Fredriksson, P. and D. Millimet. (2002b). “Is there a ‘California Effect’ in US Environmental Policymaking?” Regional Science and Urban Economics 32, 737–764.

    Google Scholar 

  • Fredriksson, P., D. Millimet and J. List. (2004). “Chasing the Smokestack: Strategic Policymaking with Multiple Instruments,” Regional Science and Urban Economics 34, 387–410.

    Google Scholar 

  • Goodspeed, T. (2000). “Tax Structure in a Federation,” Journal of Public Economics 75, 493–506.

    Google Scholar 

  • Goodspeed, T. (2002). “Tax Competition and Tax Structure in Open Federal Economies: Evidence from OECD Countries with Implications for the European Union,” European Economic Review 46, 357–374.

    Google Scholar 

  • Gordon, R. (1983). “An Optimal Taxation Approach to Fiscal Federalism,” Quarterly Journal of Economics 95, 567–586.

    Google Scholar 

  • Hayashi, M. and R. Boadway. (2001). “An Empirical Analysis of Intergovernmental Tax Interaction: The Case of Business Income Taxes in Canada,” Canadian Journal of Economics 34, 481–503.

    Google Scholar 

  • Heyndels, B. and J. Vuchelen. (1998). “Tax Mimicking Among Belgian Municipalities,” National Tax Journal 51, 89–101.

    Google Scholar 

  • Kelejian, H. and I. Prucha. (1998). “A Generalised Spatial Two Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances,” Journal of Real Estate Finance and Economics 17, 99–121.

    Google Scholar 

  • Kelejian, H. and D. Robinson. (1993). “A Suggested Method of Estimation for Spatial Interdependent Models with Auto-Correlated Errors, and an Application to a County Expenditure Model,” Papers in Regional Science 72, 297–312.

    Google Scholar 

  • Ladd, H. (1992). “Mimicking of Local Tax Burdens among Neighboring Counties,” Public Finance Quarterly 20, 450–467.

    Google Scholar 

  • Levinson, A. (2003). “Environmental Regulatory Competition: A Status Report and Some New Evidence,” National Tax Journal 56, 91–106.

    Google Scholar 

  • Manski, C. (1993). “Identification of Endogenous Social Effects: The Reflection Problem,” Review of Economic Studies 60, 531–542.

    Google Scholar 

  • Manski, C. (2000). “Economic Analysis of Social Interactions,” Journal of Economic Perspectives 14, 115–136.

    Google Scholar 

  • Murdoch, J., M. Rahmatian and M. Thayer. (1993). “A Spatially Autoregressive Median Voter Model of Recreation Expenditures,” Public Finance Quarterly 21, 334–350.

    Google Scholar 

  • Redoano, M. (2003). “Fiscal Interactions among European Countries,” Warwick Economic Research Papers No. 680.

  • Revelli, F. (2001). “Spatial Patterns in Local Taxation: Tax Mimicking or Error Mimicking?” Applied Economics 33, 1101–1107.

    Google Scholar 

  • Revelli, F. (2002a). “Local Taxes, National Politics and Spatial Interactions in English District Election Results,” European Journal of Political Economy 18, 281–299.

    Google Scholar 

  • Revelli, F. (2002b). “Testing the Tax Mimicking versus Expenditure Spill-over Hypotheses Using English Data,” Applied Economics 34, 1723–1731.

    Google Scholar 

  • Revelli, F. (2003). “Reaction or Interaction? Spatial Process Identification in Multi-tiered Government Structures,” Journal of Urban Economics 53, 29–53.

    Google Scholar 

  • Revelli, F. (2004). “Performance Rating and Yardstick Competition in Social Service Provision,” CESifo Working Paper No. 1270.

  • Revelli, F. (2005). “Spatial Interactions among Governments.” In E. Ahmad and G. Brosio (eds.), Handbook on Fiscal Federalism. Cheltenham: Edward Elgar (forthcoming).

  • Saavedra, L. (2000). “A Model of Welfare Competition with Evidence from AFDC,” Journal of Urban Economics 47, 248–279.

    Google Scholar 

  • Schaltegger, C. and D. Kuttel. (2002). “Exit, Voice, and Mimicking Behavior: Evidence from Swiss Cantons,” Public Choice 113, 1–23.

    Google Scholar 

  • Shroder, M. (1995). “Games the States Don’t Play: Welfare Benefits and the Theory of Fiscal Federalism,” Review of Economics and Statistics 77, 183–191.

    Google Scholar 

  • Solé Ollé, A. (2003). “Electoral Accountability and Tax Mimicking: The Effects of Electoral Margins, Coalition Government, and Ideology,” European Journal of Political Economy 19, 685–713.

    Google Scholar 

  • Wheaton, W. (2000). “Decentralized Welfare: Will there Be Underprovision?” Journal of Urban Economics 48, 536–555.

    Google Scholar 

  • Wilson, J. (1999). “Theories of Tax Competition,” National Tax Journal 53, 269–304.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Torino, Via Po 53, 10124, Torino, Italy

    Federico Revelli

Authors
  1. Federico Revelli
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Federico Revelli.

Additional information

JEL Code: H71, H72, H77

Rights and permissions

Reprints and permissions

About this article

Cite this article

Revelli, F. On Spatial Public Finance Empirics. Int Tax Public Finan 12, 475–492 (2005). https://doi.org/10.1007/s10797-005-4199-9

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10797-005-4199-9

Keywords

Search

Navigation