Does intense tax competition boost public acceptance for inter-municipal cooperation? Evidence from a survey among German citizens and local politicians

Abstract

ABSTRACT Intense tax competition among local governments limits their potential for tax revenues. Inter-municipal cooperation (IMC) in general and joint business parks in particular constitute a platform to coordinate local tax rates with neighboring municipalities to reduce tax competition. We ask whether local politicians and citizens are aware of this logic and whether they account for it. Using survey data from German municipalities, we find citizens’ support for joint business parks to increase in the intensity of tax competition but not for other forms of IMC. For local politicians, we do not find any effect of tax competition on IMC support.