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Testing for fiscal competition among French municipalities: Granger causality evidence in a dynamic panel data model *
Author(s) -
Binet MarieEstelle
Publication year - 2003
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/j.1435-5597.2003.tb00014.x
Subject(s) - economics , competition (biology) , granger causality , panel data , sample (material) , investment (military) , public expenditure , public finance , causality (physics) , tax competition , fiscal policy , macroeconomics , instrumental variable , public economics , econometrics , monetary economics , indirect tax , tax reform , ecology , chemistry , physics , chromatography , quantum mechanics , politics , political science , law , biology
Abstract. The purpose of this article is to produce further empirical insights into fiscal competition among local governments within an original framework. Relying on Granger's methodology, we address the question of possible causality at municipal level, between local budget variables (public expenditure and taxes) and residential location patterns. Tests are performed on a sample of 27 French municipalities belonging to the same suburban area for the 1987–1996 period. We identify two different strategies. Some localities compete in the tax rate variable while others act on public expenditure. If we consider public investment spending and taxes results strongly reject the adaptive hypothesis and clearly support the idea of fiscal competition. If we retain operating expenditure results indicate that both behaviors are accepted.