Yardstick competition in German municipalities

Arbeitspapier

Does increasing transparency improve fiscal policy behavior of local governments? One way this could take place is via Yardstick Competition between incumbents of neighboring municipalities. This paper contributes to the literature by introducing a simple model which employs probabilistic voting to show the effect of Yardstick Competition on the amount of political rents diverted from the tax revenue. Since additional rents lower the probability of being reelected, the incumbent will reduce equilibrium rents if voters use information on fiscal performance in similar municipalities to evaluate the incumbent's quality. I test this hypothesis on a panel dataset of municipal budget and electoral data in the german state of Northrine-Westphalia. I show evidence for Yardstick Competition in the local business and property tax rates.

Show object

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FiFo-CPE Discussion Paper ; No. 09-3

Classification and Topics

• Classification: Wirtschaft ; State and Local Taxation, Subsidies, and Revenue ; State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects ; Regional Government Analysis: Other
• Subject: transparency, local public finance, political economics, spatial econometrics ; Kommunale Finanzpolitik ; Yardstick Competition ; Public Choice ; Gewerbesteuer ; Grundsteuer ; Räumliche Interaktion ; Schätzung ; Nordrhein-Westfalen

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Finken, Jan
• Event: Veröffentlichung
• (who): Finanzwissenschaftliches Forschungsinstitut an der Universität zu Köln (FiFo Köln)
• (where): Köln
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/29691