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Economic and Political Foundations of Local Tax Structures: An Empirical Investigation of the Tax Mix of Flemish Municipalities

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  • Benny Geys

    (Department of Economics, Norwegian Business School (BI), Nydalsveien 37, N-0442 Oslo, Norway)

  • Federico Revelli

    (Department of Economics, University of Torino, Via Po 53, 10124 Torino, Italy)

Abstract

Building on the revenue structure theory developed by Hettich and Winer, with this paper we are the first to investigate the economic and political determinants of local tax mix choices. We thereby use panel data on 289 municipalities in the Flemish region of Belgium (period 1995–2002), where local governments enjoy extensive fiscal autonomy and have a wide choice of available tax instruments. Estimating a system of five reduced-form equations for the five central revenue sources (income, property, business, user fees, and other own revenues), our results show that economics plays a significantly more important role than politics in shaping the local tax mix. Moreover, supporting theoretical predictions about marginal cost equalization across available tax instruments, absolute reliance on each revenue source increases as the overall revenue requirement gets larger (a ‘scale effect’).

Suggested Citation

  • Benny Geys & Federico Revelli, 2011. "Economic and Political Foundations of Local Tax Structures: An Empirical Investigation of the Tax Mix of Flemish Municipalities," Environment and Planning C, , vol. 29(3), pages 410-427, June.
  • Handle: RePEc:sae:envirc:v:29:y:2011:i:3:p:410-427
    DOI: 10.1068/c10116r
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