Local taxation and tax base mobility: Evidence from France

Publication date: Available online 13 February 2019Source: Regional Science and Urban EconomicsAuthor(s): Tidiane Ly, Sonia PatyAbstractThis paper investigates the impact of tax base mobility on local taxation. First, we develop a theoretical model in order to examine the connection between local business property taxation and tax base mobility within a metropolitan area. We find that, in the presence of a budget compensation, decreasing capital intensity in business property tax base, composed of capital and land, increases the business property tax rates and decreases the tax rates on residents. We test this result using a French reform which changed the composition of the main local business tax base in 2010. Difference-in-difference estimations show that in 2010, the reduction in tax base mobility indeed resulted in a 14% rise in business property tax rates and a reduction in housing tax rates of 1.3%, compared to pre-reform average levels.
Source: Regional Science and Urban Economics - Category: Science Source Type: research