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Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice

Author

Listed:
  • Jørn Rattsø

    (Department of Economics, Norwegian University of Science and Technology)

  • Jon Hernes Fiva

    (Centre for Economic Research and Department of Economics, Norwegian University of Science and Technology)

Abstract

Decentralization of government with property tax financing is the standard recipe for public sector reform. Fiscal competition is assumed to stimulate efficiency and hold down the tax level. Property taxation offers additional incentives for efficiency. We study the incentive mechanisms involved using data for decentralized governments and in a setting where they can choose to have property taxation or not. The empirical analysis addresses whether fiscal competition and political control problems influence the choice of having property taxation. The results indicate that both incentive mechanisms are relevant and consequently support the standard advice. Fiscal competition generates a distinct geographic pattern in local taxation and political fragmentation seems to motivate property taxation to control common pool problems. The main methodological challenge handled concerns spatial interaction with discrete choice.

Suggested Citation

  • Jørn Rattsø & Jon Hernes Fiva, 2005. "Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice," Working Paper Series 5305, Department of Economics, Norwegian University of Science and Technology, revised 02 Sep 2005.
    • Handle: RePEc:nst:samfok:5305
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    References listed on IDEAS

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    Cited by:

    1. Borge, Lars-Erik & Rattsø, Jørn, 2008. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," European Economic Review, Elsevier, vol. 52(6), pages 1035-1054, August.
    2. Sambidi, Pramod R. & Harrison, R. Wes, 2006. "Spatial Clustering of the U.S. Biotech Industry," 2006 Annual meeting, July 23-26, Long Beach, CA 21360, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    More about this item

    Keywords

    property taxation; fiscal competition; political fragmentation; Bayesian analysis; spatial autoregressive model;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • 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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