Rainald Borck, Marco Caliendo, Viktor Steiner

Fiscal Competition and the Composition of Public Spending: Theory and Evidence

Section: Articles
FinanzArchiv (FA)

Volume 63 () / Issue 2, pp. 264-277 (14)

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We consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods: one that benefits mobile skilled workers and one that benefits immobile unskilled workers. We derive the jurisdictions' reaction functions for different spending categories. We then estimate these reaction functions using data from German communities. Thereby we explicitly allow for a spatially lagged dependent variable and a possible spatial error dependence by applying a generalized spatial two-stage least-squares (GS2SLS) procedure. The results show that there is significant interaction between spending of neighboring counties in Germany.

Rainald Borck No current data available.

Marco Caliendo No current data available.

Viktor Steiner No current data available.