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Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice

Jorn Rattso and Jon Fiva

Working Paper Series from Department of Economics, Norwegian University of Science and Technology

Abstract: Decentralization of government with property tax financing is the standard recipe for public sector reform. Fiscal competition is assumed to stimulate efficiency and hold down the tax level. Property taxation offers additional incentives for efficiency. We study the incentive mechanisms involved using data for decentralized governments and in a setting where they can choose to have property taxation or not. The empirical analysis addresses whether fiscal competition and political control problems influence the choice of having property taxation. The results indicate that both incentive mechanisms are relevant and consequently support the standard advice. Fiscal competition generates a distinct geographic pattern in local taxation and political fragmentation seems to motivate property taxation to control common pool problems. The main methodological challenge handled concerns spatial interaction with discrete choice.

Keywords: property taxation; fiscal competition; political fragmentation; Bayesian analysis; spatial autoregressive model (search for similar items in EconPapers)
JEL-codes: C11 C21 D78 H71 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2005-03-01, Revised 2005-09-02
New Economics Papers: this item is included in nep-dcm, nep-geo, nep-pbe, nep-pol, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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