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The effect of direct democracy on the level and structure of local taxes

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  • Asatryan, Zareh
  • Baskaran, Thushyanthan
  • Heinemann, Friedrich

Abstract

We study the effect of direct democracy on local taxation. Our setting is the German federal state of Bavaria, where in 1995 a state-wide reform introduced the possibility to initiate direct democratic legislation into the local government code. Relying on a sample of all Bavarian municipalities over 1980-2011, we hypothesize that complementing a representative form of government with the initiative process leads to (i) higher local tax rates and (ii) a shift of the local tax mix from taxes with broader (property taxes) to taxes with narrower bases (business taxes). For identification, we rely on a difference-in-discontinuity design. Our results suggest that the ease with which local initiatives can be implemented – measured by signature and quorum requirements – increases local tax rates and shift the tax mix toward taxes with narrower bases.

Suggested Citation

  • Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2017. "The effect of direct democracy on the level and structure of local taxes," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 38-55.
  • Handle: RePEc:eee:regeco:v:65:y:2017:i:c:p:38-55
    DOI: 10.1016/j.regsciurbeco.2017.04.006
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:pubcho:v:172:y:2017:i:3:d:10.1007_s11127-017-0460-x is not listed on IDEAS
    2. Zareh Asatryan & Annika Havlik & Frank Streif, 2017. "Vetoing and inaugurating policy like others do: evidence on spatial interactions in voter initiatives," Public Choice, Springer, vol. 172(3), pages 525-544, September.
    3. repec:kap:pubcho:v:174:y:2018:i:1:d:10.1007_s11127-017-0486-0 is not listed on IDEAS

    More about this item

    Keywords

    Direct democracy; Taxation; Regression discontinuity; Bavaria;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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