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Yardstick competition and the political costs of raising taxes: An empirical analysis of Spanish municipalities

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  • Núria Bosch
  • Albert Solé-Ollé

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Abstract

We test the ‘yardstick competition’ hypothesis by examining the effects of property tax increases, both in a given municipality and in other neighbouring jurisdictions, on the incumbents’ vote. In order to obtain unbiased estimates of the effects of raising taxes on voting patterns, we take into account national political shocks, the ideological preferences of the citizenship and government traits, and apply Instrumental Variables. The vote equation is estimated using a large database containing nearly 3,000 Spanish municipalities, and we analyse three local election results (1995, 1999 and 2003). Our results suggest that property tax increases, both at the municipal and neighbourhood level, have a non-negligible impact on the incumbent’s share of the vote. Copyright Springer Science + Business Media, LLC 2007

Suggested Citation

  • Núria Bosch & Albert Solé-Ollé, 2007. "Yardstick competition and the political costs of raising taxes: An empirical analysis of Spanish municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(1), pages 71-92, February.
  • Handle: RePEc:kap:itaxpf:v:14:y:2007:i:1:p:71-92
    DOI: 10.1007/s10797-006-6348-1
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    Cited by:

    1. Elena Costas-Pérez & Albert Solé-Ollé & Pilar Sorribas-Navarro, 2011. "Corruption scandals, press reporting, and accountability. Evidence from Spanish mayors," Working Papers 2011/9, Institut d'Economia de Barcelona (IEB).
    2. Kristien Werck & Bruno Heyndels & Benny Geys, 2008. "The impact of ‘central places’ on spatial spending patterns: evidence from Flemish local government cultural expenditures," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 32(1), pages 35-58, March.
    3. Padovano, Fabio & Petrarca, Ilaria, 2014. "Are the responsibility and yardstick competition hypotheses mutually consistent?," European Journal of Political Economy, Elsevier, vol. 34(C), pages 459-477.
    4. Denvil Duncan & Ed Gerrish, 2014. "Personal income tax mimicry: evidence from international panel data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 119-152, February.
    5. Laura Varela-Candamio & Fernando Rubiera Morollón & Gohar Sedrakyan, 2017. "Urban sprawl and local fiscal burden: analysing the Spanish case," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1721, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. Geys, Benny, 2006. "Looking across borders: A test of spatial policy interdependence using local government efficiency ratings," Journal of Urban Economics, Elsevier, vol. 60(3), pages 443-462, November.
    7. Eric Dubois & Sonia Paty, 2010. "Yardstick competition: which neighbours matter?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 44(3), pages 433-452, June.
    8. Shun-ichiro Bessho & Kimiko Terai, 2011. "Competition for private capital and central grants: the case of Japanese industrial parks," Economics of Governance, Springer, vol. 12(2), pages 135-154, June.
    9. Finken, Jan, 2009. "Yardstick competition in German municipalities," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 09-3, University of Cologne, FiFo Institute for Public Economics.
    10. Jordi Jofre-Monseny & Pilar Sorribas-Navarro & Javier Vázquez-Grenno, 2016. "Immigration and local spending in social services: evidence from a massive immigration wave," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1004-1029, December.
    11. Francisco Delgado & Matías Mayor, 2011. "Tax mimicking among local governments: some evidence from Spanish municipalities," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(2), pages 149-164, August.
    12. Benny Geys & Steffen Osterloh, 2013. "Borders As Boundaries To Fiscal Policy Interactions? An Empirical Analysis Of Politicians’ Opinions On Rivals In The Competition For Firms," Journal of Regional Science, Wiley Blackwell, vol. 53(4), pages 583-606, October.
    13. Cláudio Burian Wanderley, 2010. "Evolução Da Arrecadação Tributária Municipal Em Minas Gerais No Início Do Novo Milênio," Anais do XIV Seminário sobre a Economia Mineira [Proceedings of the 14th Seminar on the Economy of Minas Gerais],in: Anais do XIV Seminário sobre a Economia Mineira [Proceedings of the 14th Seminar on the Economy of Minas Gerais] Cedeplar, Universidade Federal de Minas Gerais.
    14. Agostini, Claudio A. & Brown, Philip H. & Zhang, Xiaobo, 2010. "Neighbor effects in the provision of public goods in a young democracy: Evidence from China," IFPRI discussion papers 1027, International Food Policy Research Institute (IFPRI).
    15. Pierre Salmon, 2014. "How significant is yardstick competition among governments? Three reasons to dig deeper," Chapters,in: A Handbook of Alternative Theories of Public Economics, chapter 14, pages 323-341 Edward Elgar Publishing.
    16. Revelli, Federico, 2008. "Performance competition in local media markets," Journal of Public Economics, Elsevier, vol. 92(7), pages 1585-1594, July.
    17. Katsuyoshi Nakazawa & Kota Sugahara & Minoru Kunizaki, 2013. "Linkage between Benefit Expenditure and Premium Burden: Long-Term Care Insurance in Japan," MAGKS Papers on Economics 201305, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    18. Laura Bianchini & Federico Revelli, 2013. "Green Polities: Urban Environmental Performance and Government Popularity," Economics and Politics, Wiley Blackwell, vol. 25(1), pages 72-90, March.
    19. Chiara Dalle Nogare & Matteo Galizzi, 2011. "The political economy of cultural spending: evidence from Italian cities," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 35(3), pages 203-231, August.
    20. Costas-Pérez, Elena & Solé-Ollé, Albert & Sorribas-Navarro, Pilar, 2012. "Corruption scandals, voter information, and accountability," European Journal of Political Economy, Elsevier, vol. 28(4), pages 469-484.
    21. José da Silva Costa & Armindo Cravalho, 2013. "Yardstick Competition among Portuguese Municipalities: The Case of Urban Property Tax (IMI)," FEP Working Papers 495, Universidade do Porto, Faculdade de Economia do Porto.
    22. Lenka Šťastná, 2009. "Spatial Interdependence of Local Public Expenditures: Selected Evidence from the Czech Republic," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 007-025, March.
    23. Laurent Van Malderen & Marcel Gerard, 2013. "Testing yardstick competition through a vote-function: evidence from the Walloon municipalities," Economics and Business Letters, Oviedo University Press, vol. 2(4), pages 206-214.
    24. Balaguer-Coll, Maria Teresa & Brun-Martos, María Isabel & Forte, Anabel & Tortosa-Ausina, Emili, 2015. "Local governments' re-election and its determinants: New evidence based on a Bayesian approach," European Journal of Political Economy, Elsevier, vol. 39(C), pages 94-108.
    25. repec:hpe:journl:y:2016:v:219:i:4:p:161-188 is not listed on IDEAS

    More about this item

    Keywords

    Yardstick competition; Voting; Local government; Taxes;

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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