Local taxation issues in France: rural authorities caught between tax interactions and agglomeration economies

Taxation disparities among local authorities have long been explained solely by the specific features of each of the authorities. However, one must consider that the local authorities’ tax choices are also driven by the competitive or cooperative relationships they develop. Basing ourselves on an analysis of the taxation adopted by “groups of municipalities” with single business tax (“SBT”), we show that in France there are tax interactions between groups of municipalities. The authority’s choice of tax rate is affected by that of its neighbouring authorities. Moreover, urban areas benefit from a taxable agglomeration rent. The firms based in towns agree to bear a higher tax cost, as long as this cost is offset by the benefits of agglomeration linked to the concentration of private businesses. Therefore, in fiscal terms, urban and rural authorities do not have the same room for manoeuvre. Rural authorities cannot increase their tax rate without seeing their tax base flee