Abstract
The diffusion of a novel taxing scheme (among Dutch municipalities over the period 1998–2005) is studied in which the waste disposal tax is increasing in the amount of waste a household produces. Inspection of the rise and spread of this tax shows that it is contagious: the probability of introduction is increasing in the number of neighboring municipalities that have already introduced this taxing scheme. A possible rationale is that the tax encourages the dumping of waste in neighboring municipalities. These municipalities may then introduce a similar tax to prevent dumping (spillover effect). Using panel data and a recently developed spatial probit approach (Elhorst et al. in J Appl Econom 32:422–439, 2017), it is possible to distinguish this spillover effect from time-specific effects. The results indicate the presence of strong spillovers.
Highlights
Policy decisions of governments often have effects beyond its own borders
We investigate the diffusion of differentiated waste disposal taxes across municipalities in the Netherlands, where the waste disposal tax is increasing in the amount of waste a household produces
A theoretical model is developed to explain the diffusion of a local differentiated waste disposal tax on the amount of waste a household produces across municipalities in the Netherlands
Summary
Policy decisions of governments often have effects beyond its own borders. This is especially true for local governments, where borders are nothing more than a dotted line on a map. Cities that offer amenities, like (subsidized) theatres, often attract visitors from surrounding areas, and decreasing tax rates on business activities may cause the relocation of firms. In turn this affects the policy decisions of neighboring jurisdictions (not sustaining a theatre when a nearby city already has one, decreasing tax rates on business activities). In total 110 of the 467 municipalities employed some form of DIFferentiated TARiffs (DIFTAR hereafter) in 2005.1 The purpose of this paper is to examine the causes and strength of this process and the corresponding spillover effects
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