Tax competition among municipalities in the central part of Sweden   : An empirical study: Does municipal taxation decisions depend on taxations in neighboring municipalities?

The primary task of this paper is to test the interactive relations between tax rates at municipality level. We include 96 municipalities between the years 2006 to 2013. The relations are estimated by panel data instrumental variable estimation method with fixed effect for overcoming the possible specific error of simultaneity. In addition, we choose a set of control variables to strength our analysis. The main findings of this study suggest, one percent tax cut in the neighboring municipality leads to a 0,62 percent decrease in the tax in the home municipality ceteris paribus. This result is in line with theory and is similar to findings in previous studies such as Edmark and Åhgren (2008)