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Yardstick competition and the political costs of raising taxes: An empirical analysis of Spanish municipalities

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Abstract

We test the ‘yardstick competition’ hypothesis by examining the effects of property tax increases, both in a given municipality and in other neighbouring jurisdictions, on the incumbents’ vote. In order to obtain unbiased estimates of the effects of raising taxes on voting patterns, we take into account national political shocks, the ideological preferences of the citizenship and government traits, and apply Instrumental Variables. The vote equation is estimated using a large database containing nearly 3,000 Spanish municipalities, and we analyse three local election results (1995, 1999 and 2003). Our results suggest that property tax increases, both at the municipal and neighbourhood level, have a non-negligible impact on the incumbent’s share of the vote.

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Authors and Affiliations

  1. Departament d’Hisenda Pública, & Institut d’Economia de Barcelona (IEB), Universitat de Barcelona; Facultat de Ciències Econòmiques, Avda. Diagonal, 690, Torre 4, Pl. 2a, 08034, Barcelona, SPAIN

    Núria Bosch & Albert Solé-Ollé

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  1. Núria Bosch
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  2. Albert Solé-Ollé
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Correspondence to Albert Solé-Ollé.

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JEL Classification H71 · H73

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Bosch, N., Solé-Ollé, A. Yardstick competition and the political costs of raising taxes: An empirical analysis of Spanish municipalities. Int Tax Public Finan 14, 71–92 (2007). https://doi.org/10.1007/s10797-006-6348-1

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