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Are the responsibility and yardstick competition hypotheses mutually consistent?

Fabio Padovano () and Ilaria Petrarca

European Journal of Political Economy, 2014, vol. 34, issue C, 459-477

Abstract: This paper tests the consistency between the responsibility and the yardstick competition hypotheses. If no evidence is found that voters reelect mayors comparing their performance with those of neighboring jurisdictions, strategic interactions among municipalities cannot be properly interpreted as yardstick competition. We innovate on the literature by looking at different indicators of popularity and several specifications of inter-jurisdictional comparisons. The dataset includes all Italian municipalities for the entire period when mayors could set the property tax rate, e.g., 1995–2004, considering all interjurisdictional comparisons and relaxing the implicit hypothesis of cross section analysis that observed phenomena are on their steady state equilibrium. The estimates confirm the presence of electoral concerns of the incumbents and a significant spatial correlation of the tax rates, especially among neighboring nonterm limited mayors. Given these results, strategic interactions among Italian municipalities appear consistent with the predictions of yardstick competition theory.

Keywords: Yardstick competition; Vote popularity function; Spatial panel regression (search for similar items in EconPapers)
JEL-codes: C21 D72 H71 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.ejpoleco.2013.09.006

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