Tax competition among municipalities: evidence from a property tax reform in Portugal

This paper analyses the existence of property tax competition among Portuguese municipalities. We rely on a data set for all 278 mainland municipalities between 2010 and 2015, including the characteristics of municipalities. Our models take advantage of the 2012 property tax reform which unexpectedly increased property tax statutory limits. In our main analysis, changes in the lower limit to the property tax rates are used as a source of exogenous variation to estimate the responses of municipalities to tax rates used in their neighbour municipalities. We do not find evidence of interdependence in property tax rates among Portuguese municipalities