The goal of the project is the analysis of the competitive position of the city of Frankfurt relative to its surrounding municipalities under special consideration of the local business tax.
Analysis of the rate of assessment; Impact on employment and investment.
Statistical Office of the State of Hesse.
The analysis of central indicators reveals strong centring of economic activity of the region Frankfurt in the city of Frankfurt. But at the same time there are considerable shifts in the development within the region. Here, suburbanisation is observable to a certain extent. Since the nineties an increase of municipal tax competition appears within the region Frankfurt.
Empirically quantifying the intensification of the tax competition shows that the elasticity of the tax revenue related to the calculative tax rate of the local business tax on the basis of all Hessian municipalities is close to zero. Therefore tax increases or reductions of a municipality do not generally lead to a significant change in tax revenue. The circumstances for municipalities at a distance of up to 25 km from Frankfurt are different. Around here, a reduction in the tax burden entails more tax revenue. But in other Hessian municipalities, which are at least 25 km off Frankfurt, the reduction of the calculative rate of the local business tax would be associated with a decrease in tax revenue. There are also differences in terms of timing. For instance, the elasticity of tax revenue was still positive in the Frankfurt region during the nineties. Only since around 2000 the tax competition has been intensified so that a decrease in the collection rate of a municipality in the hinterland of Frankfurt has on average positive effects on the tax revenue.
Concerning the reasons for the intensification of the tax competition a number of factors are to be pointed out. One of them would be the structural change off employment in the industrial sector. This process is associated with a reduction of the monocentric settlement structure in favour of subcenters close to the city weakening the city’s competitive position. In Frankfurt this effect is also especially pronounced due to the spatial structure. Since the administrative territorial layout of the Frankfurt region is highly subdivided in comparison to the federal average, the regional tax competition is additionally kindled. The incentives of the municipal fiscal equalisation, which could attenuate the tax competition, are slightly weaker in comparison to other states because a comparatively smaller fraction of the local business tax revenue is credited against the equalization transfers.
Finally however, we have to point out that the development of the local business tax revenue for the Frankfurt region all in all has been more favourable than for the rest of Hesse despite the intense tax competition in this region. This suggests that the region of Frankfurt has maybe gained competitiveness compared to other regions in Hesse and the rest of Germany precisely because of the intensive local competition.
Thiess Büttner and Björn Kauder, Wettbewerbsposition der Stadt Frankfurt im Verhältnis zum Umland, ifo Forschungsbericht No. 48, 2010 (Abstract).
RSS