Municipalities in Baden-Württemberg: Larger Cities Consider Themselves in a National and International Competition for Firms

When it comes to attracting companies and collecting business taxes, municipalities in the German federal state of Baden-Wuerttemberg consider communes and cities within the very same state as their primary rivals. Municipalities located close to other federal states, as well as larger cities in general, also see themselves in tough competition with cities and communes beyond the federal borders. In comparison, the competition with French and Swiss municipalities is perceived less strong. These are the results of a recent study at the Centre for European Economic Research (ZEW) in Mannheim.

Using survey data from over 700 municipal leaders in the state of Baden-Württemberg, the study investigates to which extent local jurisdictions see themselves in a local, national, and international competition for firms. Municipal leaders were asked to indicate how strong they perceive the competitive force of other communes and cities within their own state, in other states, as well as in other countries.

The calculations of the ZEW make clear that the interviewees identify especially municipalities in Baden-Württemberg as strong competitors in the struggle to attract firms. Exceptions are larger cities, regardless of weather they are located close to a border or not, that also see themselves in strong competition with jurisdictions in other federal states or countries. Leaders whose municipalities are located close to a border also sense a stronger competitive threat by foreign competitors. The most intensive competitive force is perceived with municipalities from other bordering federal states. In comparison, the surveyed local politicians from jurisdictions near the federal borders perceive the competitive force of French and Swiss jurisdictions only slightly stronger than jurisdictions far off the border.

The study shows that jurisdictions up to 20 km from the border perceive competition with municipalities from other states stronger, while the equivalent effect of the international borders to France and Switzerland ceases after approximately 12.5 km. Furthermore, the data makes clear that the competition on the Swiss-German border is perceived stronger than on the French-German border. A tentative explanation is that decision-makers perceive the cultural dimension, and especially the language dimension of the respective borders to be more important than the institutional dimension, such as the membership or non-membership in the EU. Alternatively, it could reflect Switzerland’s more aggressive corporate tax policy.

For further information please contact

Dr. Steffen Osterloh, E-mail osterloh@zew.de