TAX-LIMITED REACTION FUNCTIONS
Version of Record online: 27 OCT 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 28, Issue 5, pages 823–839, August 2013
How to Cite
Porto, E. D. and Revelli, F. (2013), TAX-LIMITED REACTION FUNCTIONS. J. Appl. Econ., 28: 823–839. doi: 10.1002/jae.1275
- Issue online: 29 JUL 2013
- Version of Record online: 27 OCT 2011
- Manuscript Revised: 4 AUG 2011
- Manuscript Received: 27 JUL 2010
This paper models for the first time a spatial process in local tax policies in the presence of centrally imposed fiscal limitations. Focusing on the frequently encountered case of a tax rate cap, we evaluate three empirical approaches to the analysis of spatially dependent limited tax policies: (i) a Bayesian spatial approach for censored dependent variables; (ii) a Tobit corner solution model augmented with a spatial lag; (iii) a spatial discrete hazard model. The evidence arising from an investigation of severely state-constrained local vehicle taxes in Italy suggests that ignoring tax limitations can lead to substantial underestimation of inter-jurisdictional fiscal interaction. Copyright © 2011 John Wiley & Sons, Ltd.