The relationship between firm mobility and tax level: Empirical evidence of fiscal competition between local governments

Abstract:\nThe mobility of the tax base may influence fiscal outcomes. The many theoretical contributions about\nthe role of mobility are not matched by empirical evidence. Existing studies address strategic\ninteraction between governments, but have little to say about mobility. We introduce a new measure\nof mobility conditions based on the geographic profit variability of industrial sectors. The econometric\nanalysis shows a systematic negative relationship between mobility conditions and tax level among\nmunicipalities in Norway. The analysis takes into account neighborhood effects in a spatial model,\nand the endogeneity of mobility conditions is handled with instrumental variables.