Business taxes and the electoral cycle
AbstractThe purpose of this paper is to assess whether politicians manipulate the timing of tax rate changes in a strategic way to maximize reelection prospects. To do so, we exploit the German local business tax as a testing ground which is set autonomously by German municipalities. As election dates vary across local councils, the data allows us to disentangle effects related to the timing of elections from common trends. Using a rich panel data-set for German municipalities, we assess the impact of elections on local business tax choices. The findings support the notion of a political cycle in tax setting behavior as the growth rate of the local business tax is significantly reduced in the election year and the year prior to the election, while it jumps up in the year after the election. This pattern turns out to be robust against a number of sensitivity checks.
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Bibliographic InfoPaper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/3.
Length: 40 pages
Date of creation: 2012
Date of revision:
Local business tax choice; political economy; election cycle;
Other versions of this item:
- Dirk Foremny & Nadine Riedel, 2012. "Business Taxes and the Electoral Cycle," CESifo Working Paper Series 3729, CESifo Group Munich.
- Foremny, Dirk & Riedel, Nadine, 2012. "Business taxes and the electoral cycle," FZID Discussion Papers 43-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-03-08 (Accounting & Auditing)
- NEP-ALL-2012-03-08 (All new papers)
- NEP-PBE-2012-03-08 (Public Economics)
- NEP-POL-2012-03-08 (Positive Political Economics)
- NEP-PUB-2012-03-08 (Public Finance)
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