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Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands

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Author Info
Maarten Allers ()
J. Elhorst ()

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Abstract

This paper provides a spatial-econometric analysis of the setting of property tax rates by Dutch municipalities. We find evidence of tax mimicking: a ten percent higher property tax rate in neighboring municipalities leads to a 3.5 percent higher tax rate. Mimicking is less pronounced in municipalities governed by coalitions backed by a large majority. This points to yardstick competition as the most likely source of tax mimicking. We also find that Dutch voters seem to be able to penalize incumbents for anticipated tax rate differentials, but not for unanticipated tax rate differentials. This limits the effectiveness of yardstick competition as a mechanism to reduce political rent-seeking. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-1500-x
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 4 (August)
Pages: 493-513
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:itaxpf:v:12:y:2005:i:4:p:493-513

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Web page: http://www.springerlink.com/link.asp?id=102915

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Related research
Keywords: property tax; tax mimicking; yardstick competition; spatial econometrics;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416. [Downloadable!] (restricted)
  2. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2004. "Yardstick competition in intergovernmental relationships: theory and empirical predictions," Economics Letters, Elsevier, vol. 83(3), pages 325-333, June. [Downloadable!] (restricted)
  3. Rietveld, Piet & Wintershoven, Patrick, 1997. "Border effects and spatial autocorrelation in the supply of network infrastructure," Serie Research Memoranda 0030, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
  4. Buettner, Thiess, 2001. "Local business taxation and competition for capital: the choice of the tax rate," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 215-245, April. [Downloadable!] (restricted)
    Other versions:
  5. Buettner, Thiess, 1999. "Determinants of Tax Rates in Local Capital Income Taxation: A Theoretical Model and Evidence from Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February. [Downloadable!] (restricted)
  7. Debabrata Das & Harry H. Kelejian & Ingmar R. Prucha, 2003. "Finite sample properties of estimators of spatial autoregressive models with autoregressive disturbances," Journal of Economics, Springer, vol. 82(1), pages 1-26, 01. [Downloadable!] (restricted)
  8. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 695-714, August. [Downloadable!] (restricted)
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  9. Borge, Lars-Erik, 1995. " Economic and Political Determinants of Fee Income in Norwegian Local Governments," Public Choice, Springer, vol. 83(3-4), pages 353-73, June.
  10. Salmon, Pierre, 1987. "Decentralisation as an Incentive Scheme," Oxford Review of Economic Policy, Oxford University Press, vol. 3(2), pages 24-43, Summer.
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  11. Revelli, Federico, 2001. "Spatial Patterns in Local Taxation: Tax Mimicking or Error Mimicking?," Applied Economics, Taylor and Francis Journals, vol. 33(9), pages 1101-07, July. [Downloadable!] (restricted)
  12. repec:cup:cbooks:9780521622912 is not listed on IDEAS
  13. Wrede, Matthias, 2001. "Yardstick competition to tame the Leviathan," European Journal of Political Economy, Elsevier, vol. 17(4), pages 705-721, November. [Downloadable!] (restricted)
  14. Muhammed N. Islam & Saud A. Choudhury, 1990. "Testing the Exogeneity of Grants to Local Governments," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 676-92, August. [Downloadable!] (restricted)
  15. Allers, Maarten & de Haan, Jakob & Sterks, Cees, 2001. " Partisan Influence on the Local Tax Burden in the Netherlands," Public Choice, Springer, vol. 106(3-4), pages 351-63, March. [Downloadable!] (restricted)
  16. Per G. Fredriksson & John A. List & Daniel L. Millimet, 2003. "Chasing the Smokestack: Strategic Policymaking With Multiple Instruments," NBER Working Papers 9801, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kristien Werck & Bruno Heyndels & Benny Geys, 2008. "The impact of ‘central places’ on spatial spending patterns: evidence from Flemish local government cultural expenditures," Journal of Cultural Economics, Springer, vol. 32(1), pages 35-58, March. [Downloadable!] (restricted)
  2. Edmark, Karin & Ågren, Hanna, 2006. "Identifying Strategic Interactions in Swedish Local Income Tax Policies," Working Paper Series 2006:22, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Heijnen, P., 2007. "The diffusion of differentiated waste disposal taxes in the Netherlands," CeNDEF Working Papers 07-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
  4. Johannes Rincke, 2009. "Yardstick competition and public sector innovation," International Tax and Public Finance, Springer, vol. 16(3), pages 337-361, June. [Downloadable!] (restricted)
  5. Edmark, Karin, 2007. "Strategic Competition in Swedish Local Spending on Childcare, Schooling and Care for the Elderly," Working Paper Series 2007:21, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
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