Tax Competition Among Municipal Governments Exit Versus Voice

摘要

This research examines the incidence of property and sales tax competition among municipal governments in the Chicago metropolitan region and investigates whether the underlying mechanism is exit or voice. First, the research estimates a model with a spatial lag component that relates each municipality's tax or revenue burden to that of its neighbors, controlling for other factors. The results show that tax competition exists for property taxes, which suggests that the competition is based on voice rather than exit. Second, assessment of preferences and attitudes toward sales and property taxes and competition also demonstrates the importance of voice in establishing tax rates and levies.