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May/June 2003, 
Vol. 85, No. 3
Posted 2003-05-01

Strategic Interaction in Tax Policies Among States

by Rubén Hernández-Murillo

The author tests for strategic interaction among U.S. states in the determination of tax rates on capital income. He finds that states have a positively sloped reaction function to the tax policies of rival states when tax rates are chosen simultaneously. He also identifies that a state’s size has a positive effect on local tax rates.