Tax mimicking among local governmentssome evidence from Spanish municipalities

Resumen

The purpose of this paper is to study the strategic interactions in the Spanish local tax system with spatial econometrics procedures. We analyse the property tax, the motor vehicle tax and the building activities tax, that represent jointly the 80 per cent of the tax revenue at the local level of government in Spain. We consider three weight specifications to define competitors: contiguity, distance and the proposal of Fingleton. After carrying out a spatial exploratory analysis, the results of the estimation of spatial lag and spatial error models confirm the horizontal externalities or positive spatial-autocorrelation in the property tax and the building activities tax, with an order of magnitude between 0.3 and 0.5, but not in the motor vehicle tax. This tax mimicking is in line with the results achieved in the empirical literature on local tax competition.