Fiscal Externalities in Multilevel Tax Structures: Evidence from Concurrent Income Taxation

This paper exploits the multi-tiered structure of personal income taxation in Italy to investigate within-tier (horizontal) and between-tiers (vertical diagonal) fiscal externalities. Estimation an unrestricted tax reaction function on municipalities located at internal regional borders using o¤-border Wald-type grouping variables as well staggered schedule mayoral elections instruments for endogenous spatial lags reveals strong positive dependence municipal rates. On other hand, there is no evidence a response rates policies, suggesting that border discontinuity estimators rely consolidated specifications (lower-plus-upper-tier rates) impose restrictions parameters are unwarranted these circumstances.