From Taxes to Politics, from Politics to Taxes: Evidence of Yardstick Competition in the Italian Municipalities
Strategic interaction in local tax setting is motivated with yardstick competition only when the fiscal decision influences the incumbents’ probability of being re-elected. Most of the previous analyses draw conclusions on yardstick competition without estimating this link or failing to find any empirical support for it. This paper, on the contrary, conducts a comprehensive test of yardstick competition on Italian Municipalities during the period 1995-2004. First, a vote popularity function is estimated. The empirical findings verify the economic voting behavior and are robust to alternative empirical specifications of the dependent variable. Then, a spatial tax setting equation is estimated. The results show a pattern of mimicking driven by a positive spatial lag coefficient and a negative spatial error coefficient. Finally, the estimated spatial correlation coefficients in time are used to investigate the dynamics of strategic interaction. The results depict a quasi monotonic pattern of convergence of the coefficients towards the lowest levels of spatial interaction, suggesting that a progressive reduction of the mimicking behavior of the incumbents has taken place.
|Date of creation:||Jul 2011|
|Date of revision:|
|Contact details of provider:|| Postal: CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex|
Phone: 02 23 23 35 63
Fax: (33) 2 23 23 35 99
Web page: http://www.condorcet-center.fr
More information through EDIRC
|Order Information:|| Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baltagi, Badi H. & Song, Seuck Heun & Koh, Won, 2003.
"Testing panel data regression models with spatial error correlation,"
Journal of Econometrics,
Elsevier, vol. 117(1), pages 123-150, November.
- Badi H. Baltagi & Seuck Heun Song & Won Koh, 2002. "Testing Panel Data Regression Models with Spatial Error Correlation," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B6-4, International Conferences on Panel Data.
- Jan K. Brueckner & Luz A. Saavedra, 2000.
"Do Local Governments Engage in Strategic Property-Tax Competition?,"
Econometric Society World Congress 2000 Contributed Papers
0357, Econometric Society.
- Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 203-30, June.
- Mutl, Jan & Pfaffermayr, Michael, 2008. "The Spatial Random Effects and the Spatial Fixed Effects Model. The Hausman Test in a Cliff and Ord Panel Model," Economics Series 229, Institute for Advanced Studies.
- Massimo Bordignon & Floriana Cerniglia & Federico Revelli, 2002. "In Search for Yardstick Competition: Property Tax Rates and Electoral Behavior in Italian Cities," CESifo Working Paper Series 644, CESifo Group Munich.
- Lars P. Feld & Emmanuelle Reulier, 2005.
"Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons,"
CREMA Working Paper Series
2005-19, Center for Research in Economics, Management and the Arts (CREMA).
- Lars P. Feld & Emmanuelle Reulier, 2009. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," German Economic Review, Verein für Socialpolitik, vol. 10, pages 91-114, 02.
- Lars P. Feld & Emmanuelle Reulier, 2005. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," CESifo Working Paper Series 1516, CESifo Group Munich.
- Federico Revelli, 2001. "Spatial patterns in local taxation: tax mimicking or error mimicking?," Applied Economics, Taylor & Francis Journals, vol. 33(9), pages 1101-1107.
- Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
- Giuseppe Arbia & Roberto Basile & Gianfranco Piras, 2005. "Using Spatial Panel Data in Modelling Regional Growth and Convergence," ISAE Working Papers 55, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
- Revelli, Federico, 2002. "Local taxes, national politics and spatial interactions in English district election results," European Journal of Political Economy, Elsevier, vol. 18(2), pages 281-299, June.
- Maarten Allers & J. Elhorst, 2005. "Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands," International Tax and Public Finance, Springer, vol. 12(4), pages 493-513, August.
- Barbara ERMINI & Raffaella SANTOLINI, 2007. "Horizontal Interaction on Local Councils' Expenditures. Evidence from Italy," Working Papers 278, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Heyndels, Bruno & Vuchelen, Jef, 1998. "Tax Mimicking Among Belgian Municipalities," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 89-101, March.
When requesting a correction, please mention this item's handle: RePEc:tut:cccrwp:2011-01-ccr. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CODA-POIREY Hélène)
If references are entirely missing, you can add them using this form.