Does inter-municipal cooperation reduce the intensity of tax competition? Evidence on inter-local industrial parks in Germany

Abstract

We ask whether inter-municipal cooperation serve as a platform by which municipalities coordinate tax policies and reduce the intensity of tax competition. Specifically, we focus on inter-municipal cooperation in form of inter-local industrial parks. We apply the case study-oriented synthetic control method (SCM) to analyze the causal impact of 12 inter-local industrial parks on municipal tax-setting behavior using data on municipalities from West-German states of Hesse and North Rhine Westphalia between 2000 and 2018. We find evidence that inter-local industrial parks lead to tax coordination in some occasions but not in others. Our ex post analysis suggests that tax coordination only takes place in specific political constellations.