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Economic and political foundations of local tax structures: an empirical investigation of the tax mix of Flemish municipalities

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  • Benny Geys
  • Federico Revelli

Abstract

Building on the revenue structure theory developed by Hettich and Winer, with this paper we are the first to investigate the economic and political determinants of local tax mix choices. We thereby use panel data on 289 municipalities in the Flemish region of Belgium (period 1995 – 2002), where local governments enjoy extensive fiscal autonomy and have a wide choice of available tax instruments. Estimating a system of five reduced-form equations for the five central revenue sources (income, property, business, user fees, and other own revenues), our results show that economics plays a significantly more important role than politics in shaping the local tax mix. Moreover, supporting theoretical predictions about marginal cost equalization across available tax instruments, absolute reliance on each revenue source increases as the overall revenue requirement gets larger (a ‘scale effect’).

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  • Benny Geys & Federico Revelli, 2011. "Economic and political foundations of local tax structures: an empirical investigation of the tax mix of Flemish municipalities," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 29(3), pages 410-427, June.
  • Handle: RePEc:pio:envirc:v:29:y:2011:i:3:p:410-427
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    1. Alessandro Bucciol & Laura Cavalli & Paolo Pertile & Veronica Polin & Alessandro Sommacal, 2016. "Redistribution at the local level: the case of public childcare in Italy," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 63(4), pages 359-378, December.
    2. Santiago Lago-Peñas, 2005. "Evolving federations and regional public deficits: testing the bailout hypothesis in the Spanish case," Environment and Planning C: Government and Policy, Pion Ltd, London, vol. 23(3), pages 437-453, June.
    3. Braga, Michela & Scervini, Francesco, 2017. "The performance of politicians: The effect of gender quotas," European Journal of Political Economy, Elsevier, vol. 46(C), pages 1-14.
    4. De Witte, Kristof & Geys, Benny, 2013. "Citizen coproduction and efficient public good provision: Theory and evidence from local public libraries," European Journal of Operational Research, Elsevier, vol. 224(3), pages 592-602.

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