From Taxes to Politics, from Politics to Taxes: Evidence of Yardstick Competition in the Italian Municipalities
AbstractStrategic interaction in local tax setting is motivated with yardstick competition only when the fiscal decision influences the incumbents’ probability of being re-elected. Most of the previous analyses draw conclusions on yardstick competition without estimating this link or failing to find any empirical support for it. This paper, on the contrary, conducts a comprehensive test of yardstick competition on Italian Municipalities during the period 1995-2004. First, a vote popularity function is estimated. The empirical findings verify the economic voting behavior and are robust to alternative empirical specifications of the dependent variable. Then, a spatial tax setting equation is estimated. The results show a pattern of mimicking driven by a positive spatial lag coefficient and a negative spatial error coefficient. Finally, the estimated spatial correlation coefficients in time are used to investigate the dynamics of strategic interaction. The results depict a quasi monotonic pattern of convergence of the coefficients towards the lowest levels of spatial interaction, suggesting that a progressive reduction of the mimicking behavior of the incumbents has taken place.
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Bibliographic InfoPaper provided by Condorcet Center for political Economy in its series Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS with number 2011-01-ccr.
Date of creation: Jul 2011
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Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CDM-2011-10-15 (Collective Decision-Making)
- NEP-PBE-2011-10-15 (Public Economics)
- NEP-POL-2011-10-15 (Positive Political Economics)
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