Determinants of municipal tax rates: empirical evidence in the portuguese context

Abstract

The municipality is the circumscription of the territory in which citizens, associated by common relations (locality, work and traditions) live under an autonomous organisation, for economic, administrative and cultural purposes. The powers to define the tax burden in each municipality raise the question of municipal competitiveness. This study aims to analyse the determinants of municipalities' tax policy options, at the level of municipal tax attractiveness. Presently, the attribution of tax powers has extended to the sphere of local power, where municipalities can decide, in relation to their taxes, to grant tax benefits and reduce the municipal tax burden, that is, tax policy has become a general policy instrument of local authorities. In this context, supported by an international dogma favourable to the increasing attribution of administrative and financial autonomy, the fiscal competence of Portuguese municipalities has been extended. In this exploratory study, we analysed the impact of the municipal competence of annual differentiation of the tax burden as a way to observe the ability of local actors to increase municipal competitiveness and local development.