Tax mimicking in Spanish municipalities: expenditure spillovers, yardstick competition, or tax competition?

Francisco Bastida (), Bernardino Benito () and Maria-Dolores Guillamon ()
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Francisco Bastida: University of Murcia-Facultad Economa y Empresa, Campus Espinardo, 30100 Espinardo-Murcia, Spain ; American University of Armenia-Manoogian Simone College of Business & Economics, Yerevan, Republic of Armenia
Maria-Dolores Guillamon: University of Murcia-Facultad Economa y Empresa, Campus Espinardo, Spain

Public Sector Economics, 2019, vol. 43, issue 2, 115-139

Abstract: This paper evaluates whether the agency problem in public administration shapes Spanish municipalities’ tax policy. To this aim, we have considered 2,431 Spanish municipalities for the period from 2002 to 2013.We find significant evidence of tax mimicking of neighboring municipalities, in both property tax and car tax. However, incumbents are not signaling their competence through tax competition. Rather, expenditure spillovers explain this interaction. Municipalities seek to have the same services and infrastructures as their neighbors. The fact that there is not tax benchmarking does not mean that the agency problem is not present in Spanish municipalities. The agency problem is one of the reasons corruption is so widespread among Spanish municipalities. Regarding the further policy implications of our findings, legislation should direct municipal governments’ decisions towards the real needs of their constituencies.

Keywords: property tax; car tax; tax mimicking; agency problem; municipal government (search for similar items in EconPapers)
JEL-codes: D72 H71 H77 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:43:y:2019:i:2:p:115-139

DOI: 10.3326/pse.43.2.1

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