Does Interlocal Competition Drive Cooperation in Local Economic Development Policies? Evidence on Interlocal Business Parks in Germany

Abstract

An increasing number of municipalities cooperates in the field of economic development. In this article, we focus on a specific instrument in this field, namely the development of joint business parks. We apply a hazard model to data from West German municipalities between 2000 and 2015. We find interlocal business parks to be more frequent among small municipalities and in urban clusters and other constellations where suitable land is scarce. Our main focus rests on the role of intraregional competition. An analogy building on the literature on international tax coordination supports the hypothesis that interlocal business parks are more likely in regions where intraregional competition is intense. We measure the intensity of competition using local tax rates and find the evidence to be affirmative: The likelihood of interlocal business park formation increases in the intensity of intraregional (tax) competition.