Who do you blame in local finance? An analysis of municipal financing in Italy

Massimo Bordignon (), Veronica Grembi and Santino Piazza

No def035, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: In a political agency model, we study the effect of introducing a less transparent tax tool for the financing of local governments. We show that lower quality politicians would use more the less transparent tax tool to enhance their probability of re-election. This prediction is tested by studying a reform that in 1999 allowed Italian municipalities to partially substitute a more accountable source of tax revenue (the property tax) with a less transparent one (a surcharge on the personal income tax of residents). Using a Difference in Difference approach, we show that in line with theory, Mayors at their first term in power adopted a higher surcharge on the personal income tax and reduced the property tax rate significantly more than Mayors in their final term..

Keywords: Fiscal federalism; Tax transparency; Agency Model; Property tax. (search for similar items in EconPapers)
JEL-codes: D78 H71 H77 (search for similar items in EconPapers)
Pages: 40
Date: 2015-12
New Economics Papers: this item is included in nep-acc, nep-eur, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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http://dipartimenti.unicatt.it/economia-finanza-def035.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: Who do you blame in local finance? An analysis of municipal financing in Italy (2017)
Working Paper: Who do you blame in local finance? An analysis of municipal financing in Italy (2015)
Working Paper: Who do you Blame in Local Finance? An Analysis of Municipal Financing in Italy (2010)
Working Paper: Who do you blame in local finance? An analysis of municipal financing in Italy (2010)
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