The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments
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Date
2005Metadata
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- Discussion Papers [1005]
Abstract
Abstract:
The mobility of the tax base may influence fiscal outcomes. The many theoretical contributions about
the role of mobility are not matched by empirical evidence. Existing studies address strategic
interaction between governments, but have little to say about mobility. We introduce a new measure
of mobility conditions based on the geographic profit variability of industrial sectors. The econometric
analysis shows a systematic negative relationship between mobility conditions and tax level among
municipalities in Norway. The analysis takes into account neighborhood effects in a spatial model,
and the endogeneity of mobility conditions is handled with instrumental variables.