Using a Discontinuous Grant to Identify the Effect of Grants on Local Taxes and Spending

This paper studies the determinants of local tax rates. For the two main local taxes in Spain -the property tax and the motor vehicle tax -we test the existence of tax mimicking, yardstick competition and political trends in a sample of 2,713 municipalities. Using different spatial models, the results support the hypothesis of tax mimicking, with coefficients over 0.40. We also show the relevance of political variables such as the ideology of the incumbents and political fragmentation. The fact that incumbents with weaker political support display stronger mimicking behaviour is interpreted as evidence in favour of yardstick competition. Finally, we find incumbents mimic neighbouring municipalities ruled by the same political party, confirming the political trends hypothesis.JEL Codes: C31, H71, H77

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Granting Public or Private Consumption? Effects of Grants on Local Public Spending and Income Taxes

Lundqvist

2010

SSRN Journal

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Using a Discontinuous Grant to Identify the Effect of Grants on Local Taxes and Spending

Cited by 7 publications

References 21 publications

An Empirical Assessment of the Municipal Financial Situation in Spain

An Empirical Assessment of the Municipal Financial Situation in Spain

On the Determinants of Local Tax Rates: New Evidence from Spain

Granting Public or Private Consumption? Effects of Grants on Local Public Spending and Income Taxes

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