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In Search for Yardstick Competition: Property Tax Rates and Electoral Behavior in Italian Cities

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Author Info
Bordignon, Massimo
Cerniglia, Floriana
Revelli, Federico

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Abstract

Do citizens engage in comparative performance evaluation across local governments? And if they do, how can we disentangle this behavior from other forms of strategic interactions among local governments or simple spatial correlation across neighboring jurisdictions? We use spatial econometrics techniques and the institutional characteristics of the Italian system to test if some theoretically derived predictions of yardstick competition theory are supported by data, estimating to this aim both a tax setting and a popularity equation. The results show that local tax rates are positively auto-correlated among neighboring jurisdictions when the mayors run for re-election, while this correlation is absent where either the mayors face a term limit or where they are backed by an overwhelming majority in the local council. Both results are in clear agreement with yardstick theory. On the other hand, the results of the estimation of the popularity equation are less supportive of the theory, possibly as a result of the difficulty in controlling for public service quality and the simultaneous setting of multiple policy instruments.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 644.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_644

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Related research
Keywords: local property tax setting; yardstick competition; spatial auto-correlation.;

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Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March. [Downloadable!] (restricted)
    Other versions:
  2. Meyer, Margaret A & Vickers, John, 1997. "Performance Comparisons and Dynamic Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 547-81, June.
    Other versions:
  3. 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:
  4. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Besley, Timothy & Case, Anne, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 769-98, August. [Downloadable!] (restricted)
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  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. Bordignon, Massimo & Minelli, Enrico, 2001. "Rules transparency and political accountability," Journal of Public Economics, Elsevier, vol. 80(1), pages 73-98, April. [Downloadable!] (restricted)
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  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. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November. [Downloadable!] (restricted)
  10. 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)
  11. Figlio, David N. & Kolpin, Van W. & Reid, William E., 1999. "Do States Play Welfare Games?," Journal of Urban Economics, Elsevier, vol. 46(3), pages 437-454, November. [Downloadable!] (restricted)
  12. Shroder, Mark, 1995. "Games the States Don't Play: Welfare Benefits and the Theory of Fiscal Federalism," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 183-91, February. [Downloadable!] (restricted)
  13. Revelli, Federico, 2002. "Local taxes, national politics and spatial interactions in English district election results," European Journal of Political Economy, Elsevier, vol. 18(2), pages 281-299, June. [Downloadable!] (restricted)
  14. SALMON, Pierre, 1987. "Decentralization as an incentive scheme," Institut des Mathématiques Economiques – Document de travail de l’I.M.E. (1974-1993) 98, Institut des Mathématiques Economiques. LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS, Université de Bourgogne.
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  15. Bivand, Roger & Szymanski, Stefan, 1997. "Spatial dependence through local yardstick competition:: theory and testing," Economics Letters, Elsevier, vol. 55(2), pages 257-265, August. [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. Michela Redoano, 2007. "Fiscal Interactions Among European Countries. Does the EU Matter?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer, vol. 12(4), pages 349-373, August. [Downloadable!] (restricted)
  3. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2008. "Constitutional reforms, fiscal decentralization and regional fiscal flows in Italy," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0084, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE). [Downloadable!]
  4. Crabbé, Karen & Vandenbussche, Hylke, 2009. "Are Your Firm's Taxes Set in Warsaw? Spatial Tax Competition in Europe," CEPR Discussion Papers 7159, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete over Corporate Tax Rates?," CEPR Discussion Papers 3400, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Angelo Baglioni & Andrea Monticini, 2008. "The intraday interest rate under a liquidity crisis: the case of August 2007," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0083, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE). [Downloadable!]
  7. Massimo Bordignon, 2007. "Exit and Voice. Yardstick versus Fiscal Competition across Governments," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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