The local distribution of endowments matters: Modelling tax competition with heterogeneous local residents

This study expands on the tax competition literature by incorporating the heterogeneity of resource endowments into the tax competition framework. It theoretically elaborates that the local distribution of resource endowments affects both the level of tax rate and the degree of spatial dependence in tax competition, and empirically confirms the theory using the data for 60 urban municipalities in the Seoul metropolitan area (SMA), Korea in the years 2004–2006. A spatial panel model for tax cut confirms the presence of tax competition in the SMA and the effects on tax cut of the resource endowment distribution. Another regression model for local indicators of spatial dependence uncovers the fact that the spatial dependence in tax cut is also determined by the local endowment distribution.