Local Taxation and Tax Base Mobility: Evidence from a Business Tax Reform in France

Tidiane Ly, Sonia Paty
2018 Social Science Research Network  
This paper investigates the impact of tax base mobility on local taxation. We first 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 decreasing capital intensity in the tax base increases the business property tax rates unambiguously. We then test this result using a French reform, which changes the composition of the main local business tax base in 2010. Estimations using
more » ... mations using Difference-in-Differences show that the reduction in the mobility of the tax base indeed results in higher business property tax rates. Housing tax rates were not affected by the reform. Abstract This 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 nd 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. Dierence-in-dierence 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.
doi:10.2139/ssrn.3194037 fatcat:zpswkonvfvcstch56h4rnljiy4