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...ker constraints on their ability to engage in redistributive tax/transfer policies, even for countries (presumably including almost all countries) which are sufficiently small that they cannot affect the worldwide rate of return on capital or labor. It also suggests an operationally-meaningful basis on which one could examine whether the localities within a state, province, metropolitan area, or other relatively small region compete ‘‘more intensely’’ with one another than with the rest of the world. Empirical analyses of tax competition among localities within small regions (Brueckner, 2001; Buettner, 2001; Brueckner and Saavedra, 2001) find that the amount of capital and the choice of capital tax policy for any one local government depends on the fiscal policies of nearby localities. If capital were as freely mobile across the nation or the entire world as within a metropolitan area, the policies of neighboring jurisdictions would have no effect on amount of capital within a given locality and thus, presumably, no effect on its tax policy. These empirical findings are thus perhaps most easily explained by faster speeds of capital-stock adjustment on smaller geographic scales.5. Conclusion The ...

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... these models is not necessarily geographic proximity. Case et al. find that similarity in demographic composition is the important descriptive when state spending is influenced by the spending of other states. They conclude that state government’s level of per capita expenditure is positively affected by the expenditure levels of similar states, but the authors do not relate this result to mobility. Empirical studies of particular relevance to firm mobility are Brueckner (1998) on growth controls in US municipalities, Hayashi and Boadway (2000) on business taxation in Canadian provinces, and Buettner (2001) on business taxation in Germany. This study takes as a starting point the model of Devereux et al. (2002) designed to understand competition between countries over corporate tax rates. They show theoretically how the mobility depends on the variation in relocation costs of industries and estimate tax reaction functions of OECD countries. We explicitly bring variation in mobility conditions between regions in their model to generate a hypothesis that increased mobility will reduce 4 the taxation of firms. The hypothesis is tested based on local government data. The basic empirical assumption i...

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...atial auto-correlation JEL classification: C51; D72; H71 * Corresponding author. E mail addresses: mbordig@mi.unicatt.it (M.Bordignon), fcernigl@mi.unicatt.it (F.Cerniglia), federico.revelli@unito.it (F. Revelli). 2 1. Introduction One of the most interesting recent developments in empirical local public finance is the growing evidence of the existence of strategic interaction in fiscal behavior across local governments. Ladd (1992), Case (1993), Case et al. (1993), Kelejian and Robinson (1993), Murdoch et al. (1993), Besley and Case (1995a), Shroder (1995), Bivand and Szymanski (1997, 2000), Buettner (2001), Heyndels and Vuchelen (1998), Brueckner (1998), Brueckner and Saavedra (2001), Figlio et al. (1999), Brett and Pinkse (2000), Saavedra (2001), Revelli (2001a; 2001b) and Solè Ollè (2001) all found evidence of strategic behavior, using a variety of data sets, endogenous variables and estimation techniques. While the empirical evidence seems robust, unfortunately it is consistent, or it has been taken as such, with several competing theories of local government behavior. For example, the fact that local tax rates – or more generally fiscal variables – are correlated across neighboring jurisdic...

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...n and Wassmer (1995)), English districts (Bivand and Szymanski (1997, 2000) and Revelli (2001, 2003)), Belgian municipalities (Heyndels and Vuchelen (1998)), and municipalities in British Columbia (Brett and Pinkse (2000)), Boston (Brueckner and Saavedra (2001), Milan (Bordignon, et al. (2003)), Barcelona (Sole-Olle (2003)) and Dutch municipalities (Allers and Elhorst (2005)). Again, these studies address a range of different aspects of taxes and expenditures. There are a few papers providing evidence for strategic interaction between local authorities when setting local business tax rates. Buettner (2001) finds evidence for local tax competition in Baden-Wuerttemberg (Germany) and Charlot and Paty (2010) for French municipalities. In contrast Chirinko and Wilson (2010, 2011) find a negative slope for the reaction function which is at odds with the standard tax competition theory. There are two potential explanations for this different result. First Chirinko and Wilson introduce dynamics by including spatial lags from previous years. Secondly, corporate tax competition between local authorities could be influenced by vertical tax competition between the local jurisdictions and the federal gover...