Original scientific paper

https://doi.org/10.3326/pse.43.2.1

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

Francisco Bastida ; University of Murcia-Facultad Economía y Empresa, Campus Espinardo, 30100 Espinardo-Murcia, Spain ; American University of Armenia-Manoogian Simone College of Business & Economics, Yerevan, Republic of Armenia
Bernardino Benito orcid.org/0000-0003-2165-994X ; University of Murcia-Facultad Economía y Empresa, Campus Espinardo, Spain
María-Dolores Guillamón orcid.org/0000-0001-7331-5167 ; University of Murcia-Facultad Economía y Empresa, Campus Espinardo, Spain
Ana-María Ríos ; University of Murcia-Facultad Economía y Empresa, Campus Espinardo, 30100 Espinardo-Murcia, Spain ; American University of Armenia-Manoogian Simone College of Business & Economics, Yerevan, Republic of Armenia

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.

Keywords

property tax; car tax; tax mimicking; agency problem; municipal government

Hrčak ID:

220867

URI

https://hrcak.srce.hr/220867

Publication date:

10.6.2019.

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