Thompson Rivers University

Visiting scholar from UBC-O finds evidence of tax competition among local governments in British Columbia

April 8, 2013

Professor Ross Hickey from the Department of Economics at UBC-O and an expert in Public Finance and Political Economy visited the Department of Economics at TRU on April 4, 2013 and presented research he is undertaking on tax competition amongst numerous municipalities in British Columbia, Canada. He is exploring the extend to which local governments compete over a mobile business property tax base by adjusting their tax rates. Professor Hickey finds a innovative way to estimate the effect of neighboring tax rates on a local government’s tax rate. Finding the tax setting best response function is complicated and not an easy task as neighboring tax rates are endogenous. A local government might react to a neighbor’s tax reduction by reducing their taxes which in turn affects the neighbor’s tax response and so on. This tax competition could lead to “a race to the bottom” where all municipalities end up losing revenue without much gains. In order to deal with the estimation issues he used  a procedure known as difference-in-differences. The endogeneity of neighboring tax rates was avoided by using election outcomes as an instrumental variable. His findings indicate that tax competition is the main determining factor of tax setting behavior. The results are discussed with reference to the local government institutions and the rising property values. More information about Professor Ross Hickey can be found at his website:



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