ETSG edition:8 location:Vienna, (Austria) date:7-9 September 2006
Although the statutory tax rate is the same for all ¯rms within onecountry, the e®ective tax rate can be di®erent because of the complexityand diversity of tax rules, the variety in levels of enforcement, the taxincentives o®ered to some types of enterprises or the existence of spe-cial tax regimes. Using ¯rm- and regional-level data, this paper studiesregional di®erences in the e®ective tax rate of Italian companies. Theresults show that ¯rms with a large number of employees and long termleverage have a higher e®ective tax rate, while capital- and R&D-intensive¯rms have lower e®ective tax rates. Since the 20 Italian regions can usethe local tax (IRAP) as an instrument to attract companies to their ju-risdiction, strategic interaction between neighboring regions is analyzed.A ¯scal reaction function indicates positive strategic tax competition be-tween Italian regions in e®ective tax rates but not in the statutory taxrates.