Let's Stay in Touch - Evidence on the Role of Social Learning in Local Tax Interactions

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Short-lived reform eects support our ndings that social learning within certain networks intensies tax rate interactions via coordination of local decision makers.

Learning from the Joneses: The professional learning effect of regional councils of government on municipal fiscal slack in suburban Chicago

“…As the earliest and most prominent example, tax competition refers to the “interactive tax setting by independent governments in a noncooperative, strategic way” (Dietsch, 2015, p. 2). Most notably, local governments in a federalist setting look at their neighbors strategically as they craft tax policy, taking the form of either direct tax competition between governments, political consideration of differentiating one's government from neighboring tax policy, and/or exploiting benefits from a neighboring municipality's tax policy (Blesse & Martin, 2015). Why do governments compete regarding tax policy?…”

“…According to Tiebout, these market forces promote the efficient allocation and production of public goods and services. However, resource flow models have also been described as a “harmful race to the bottom” (Blesse & Martin, 2015, p. 5) that results in “wasteful competition for scarce capital” (Guo & Wang, 2017, p. 74).…”

“…Instead of blindly mimicking neighbors, those practicing social learning first evaluate the policy behind the action and only adopt the said policy once it has been tested and deemed successful (Shipan & Volden, 2008). This can alter the setting of interaction: moving from the convenience of adjacency to more sophisticated diffusion venues where politicians and bureaucrats are more likely to interact more intensely; including coordinating institutions such as professional associations or COGs (Blesse & Martin, 2015). Collaborative governance networks can also promote social learning, where the trust built between professional actors through repeated successful interactions promotes diffusion of best practices (Emerson & Nabatchi, 2015; Mitchell & Mohr, 2019).…”

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

“…They argue that this tax bunching is an indication of partial tax coordination, though they do not provide any empirical evidence to back this hypothesis. Blesse and Martin (2015) analyze the tax-setting behavior of municipalities in the German state North Rhine-Westphalia and find more intense tax interactions among municipalities located in the same county or administrative district (Regierungsbezirk) or covered by the same local newspaper. While these studies indicate that tax coordination takes place where there are networks or organizations of interlocal interaction, they do not test for the role of tax competition in the establishment of these networks or organizations.…”