Previous research has shown that Tiebout-style fiscal competition among local governments reduces the likelihood of adopting income taxes. This literature has not yet considered the impact of yardstick competition on tax instrument choice. This paper employs spatial econometrics to test for yardstick competition in the decision to adopt an income tax. The results, based on Ohio school district data, indicate that school districts are more likely to adopt an income tax if their neighbors have already done so. While a negative correlation of Tiebout competition on district income tax adoption persists, controlling for spatial dependence reduces the statistical significance of the effect.
Tuesday, April 06, 2010
Yardstick Competition in School District Income Tax Adoption
Joshua Hall and I now have a paper (ungated here) forthcoming in Public Finance Review, titled "Tiebout Competition, Yardstick Competition, and Tax Instrument Choice: Evidence from Ohio School Districts." Those interested in spatial econometric applications and interpretations in public finance settings might find this to be of particular interest. Here is the abstract: