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Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands

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Abstract

This paper provides a spatial-econometric analysis of the setting of property tax rates by Dutch municipalities. We find evidence of tax mimicking: a ten percent higher property tax rate in neighboring municipalities leads to a 3.5 percent higher tax rate. Mimicking is less pronounced in municipalities governed by coalitions backed by a large majority. This points to yardstick competition as the most likely source of tax mimicking. We also find that Dutch voters seem to be able to penalize incumbents for anticipated tax rate differentials, but not for unanticipated tax rate differentials. This limits the effectiveness of yardstick competition as a mechanism to reduce political rent-seeking.

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Authors and Affiliations

  1. Faculty of Economics, University of Groningen, 9700, AV, Groningen, The Netherlands

    Maarten A. Allers & J. Paul Elhorst

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  1. Maarten A. Allers
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  2. J. Paul Elhorst
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Correspondence to Maarten A. Allers.

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JEL Code: D72, H71

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Allers, M.A., Elhorst, J.P. Tax Mimicking and Yardstick Competition Among Local Governments in the Netherlands. Int Tax Public Finan 12, 493–513 (2005). https://doi.org/10.1007/s10797-005-1500-x

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  • DOI: https://doi.org/10.1007/s10797-005-1500-x

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