Voting, Taxes and Heterogeneous Preferences: Evidence from Swedish Local Elections

A standard finding in the literature on political agency is that voters punish incumbents who raise taxes. Typically, only the reaction of a representative voter is considered, with the notion that all voters dislike high taxes because the revenue is, at least on the margin, spent on rent-seeking activities. In this paper we question this interpretation by considering the heterogeneous responses to tax changes in the electorate. Using high-quality panel survey data from Swedish local politics we find that voters who, ex ante, prefer a small public sector punish incumbents who raise taxes, while voters who prefer a large public sector actually reward tax hikes. This result holds also conditional on individuals’ past voting behavior and for voters who have low condence in politicians, indicating that Swedish voters interpret tax changes based on their own policy preferences, rather than as going to wasteful activities.