Does reducing municipal taxes works to increase revenue and reduce inequality at metropolitan level?
The database and the do-file, has information on municipal finances, socio-economic, institutional and geographic background. Specifically, the information contained in the database is about municipal taxes on commercial activity in the Metropolitan Area of Santiago de Chile (MAS) for the period 2002-2020. With these data it is possible to estimate the collection of local taxes in those municipalities that have decided to reduce tax rates in order to attract new businesses, i.e. it is possible to estimate the effect of inter-municipal competition in a highly unequal metropolis, with low levels of decentralisation, and which concentrates 40% of the population and 45% of the economic activity of the country. The MAS is composed of 52 municipalities, of which 6 have implemented the policy of decreasing the business tax. According to Law 3.063, the tax on lucrative activities corresponds to 0.5% of the annual equity capital and can be decreased to a minimum of 0.25% by agreement of the municipal council (BCN 1979). The implementation of this policy among MAS municipalities has three particularities. First, the policy has been progressively implemented since 2010. Second, the municipalities that implemented the policy are of medium size and income within the MAS. The third peculiarity that characterises business tax revenues in the MAS is that growth has been heterogeneous, as it has tended to be concentrated in certain communes, which is explained by the levels of inequality and segregation in the metropolis. The Gini Index for business tax revenues for the period 2002-2020 for the 52 municipalities of the MAS, which has remained at 0.74.
Steps to reproduce
The database can be opened with Stata or R, the do-file contains the whole procedure for dealing with the data. The data are public and can be found at http://datos.sinim.gov.cl/