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

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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)

  • Bernardino Benito

    (University of Murcia-Facultad Economa y Empresa, Campus Espinardo, Spain)

  • Maria-Dolores Guillamon

    (University of Murcia-Facultad Economa y Empresa, Campus Espinardo, Spain)

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.

Suggested Citation

  • Francisco Bastida & Bernardino Benito & Maria-Dolores Guillamon, 2019. "Tax mimicking in Spanish municipalities: expenditure spillovers, yardstick competition, or tax competition?," Public Sector Economics, Institute of Public Finance, vol. 43(2), pages 115-139.
    • Handle: RePEc:ipf:psejou:v:43:y:2019:i:2:p:115-139
    DOI: 10.3326/pse.43.2.1
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    4. Trojanek, Maria & Kisiala, Wojciech & Trojanek, Radoslaw, 2021. "Do local governments follow their neighbours’ tax strategies? Tax mimicking amongst Polish municipalities," Land Use Policy, Elsevier, vol. 108(C).

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    More about this item

    Keywords

    property tax ; car tax ; tax mimicking ; agency problem ; municipal government;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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