Local governments interaction in services tax setting and the consequences for tax base in São Paulo

Abstract

According to the research Perfil dos municípios Brasileiros de 2012 (Profile of Brazilian municipalities), do Instituto Brasileiro de Geografia e Estatística - IBGE, about 63% of the country's municipalities were using attraction mechanisms of enterprises. Municipalities seek to provide benefits to companies expecting future earnings arising from increased economic activity. Among the tributes under the responsibility of the municipalities, the ISS (tax on services revenues) appears as a major target of debate, because it directly affects the services companies. In this context, we seek to examine two points on the ISS rates: I) if there is competition among municipalities in setting rates, or rather, what type of interaction occurs between the municipalities; II) if indeed the differential rates of ISS serves as a force of attraction, that is, if influences the number of companies in a particular locality. Using spatial econometrics, we intend to estimate a model to explain the definition of ISS rates and a model explaining the location of firms. Thus, we seek to advance the knowledge about tax policy of municipalities and its effects and determinants in space. (AU)