Authors	Borck, R., Caliendo, M. and Steiner, V.
Year	2007
Reference	Finanzarchiv / Public Finance Analysis, 63(2), 264-277.
Keywords	Tax competition, capital skill complementarity, public spending, spatial econometrics.
JEL-Classification	H77, J24, J61
Download	Revised version from November 2006: PDF DIW Discussion Paper from November 2005: PDF
Abstract	In this paper, we consider fiscal competition between jurisdictions. Capital taxes are used to finance a public input and two public goods, one which benefits mobile skilled workers and one which benefits immobile unskilled workers. We derive the jurisdictions' reaction functions for different spending categories. We then estimate these reaction functions using data from German communities. Thereby we explicitly allow for a spatially lagged dependent variable and a possible spatial error dependence by applying a generalized spatial tow-stage least squares (GS2SLS) procedure. The results show, that there is significant interaction between spending of neighbouring counties in Germany.