Local taxes and economic growth

Elisabeth Preyer, Desislava Kalcheva, Riccardo Curtale (), Michele Tucci (), Andrius Kučas, Germà Bel, Alexandru Cristian Damian, Julita Łukomska, Sanita Šķiltere, Matthieu Chtioui, Mario Hesse, Tim Starke, Teemu Lyytikäinen, Luisa Loiacono, Riccardo Secomandi, Francesca Gastaldi, Joana Ferreira, Viktoras Sirvydis, Judit Kálmán, Kaimo Käärmann-liive, Dario Runtic, Norbert Petrovici, Kurt Houlberg, Ulf Ramberg, Gerard Turley, Benedikt Herrmann (), Ana Agundez Garcia (), Maximilian Von Ehrlich and Lucie Sedmihradská
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Riccardo Curtale: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Michele Tucci: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Benedikt Herrmann: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en
Ana Agundez Garcia: European Commission - JRC, https://joint-research-centre.ec.europa.eu/index_en

No JRC145286, JRC Research Reports from Joint Research Centre

Abstract: Municipalities shoulder the burden of creating business-friendly environments – managing infrastructure, navigating public resistance, and investing countless hours in smoothing the path for economic development. Yet, the rewards often flow elsewhere. Local taxes on economic activity offer a powerful solution. While a thriving local economy boosts budgets, different taxes shape municipal decision-making in distinct ways. This report examines how various type of taxes can serve as rewards for local economic development. To compare municipal tax revenues across countries, it introduces three dedicated indicators. To illustrate real-world impact, three case studies demonstrate how the sharing of direct taxes can catalyse local growth. Furthermore, there are strong indications that voluntary tax compliance rises when revenues remain local. In other words, rewarding local governments through tax sharing is a potential driver of both economic growth and fiscal compliance – benefiting citizens, businesses, and governments at all levels.

Date: 2026-05
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