Decentralization, Competition and the Local Tax Mix: Evidence from Flanders

22 Pages Posted: 19 Oct 2009

See all articles by Federico Revelli

Federico Revelli

University of Turin

Benny Geys

Vrije Universiteit Brussel (VUB)

Date Written: January 19, 2009

Abstract

While numerous studies analyse the determinants of the level and composition of local public spending, little attention has been given to what shapes the choice of tax instruments used by decentralised governments. This paper bridges this gap by investigating the economic and political determinants of the local tax mix in the Flemish region of Belgium, where local governments enjoy extensive fiscal autonomy and have a wide variety of tax instruments available. Specifically, using panel data of 289 Flemish municipalities over the period 1995-2002, we estimate a system of five reduced-form tax revenue-share equations (income, property, business, user fees and other own revenues). The analysis highlights a number of important economic determinants of the observed tax mix (especially the tax base and revenue requirement), while political variables turn out to play a relatively minor role. Finally, the analysis uncovers virtually no evidence of inter-municipal dependence in the determination of the local tax mix.

Keywords: Tax mix, Local government, Flemish municipalities, Decentralisation

JEL Classification: C33, D72, H71

Suggested Citation

Revelli, Federico and Geys, Benny, Decentralization, Competition and the Local Tax Mix: Evidence from Flanders (January 19, 2009). U. of Torino Department of Economics Research Paper No. 2/2009-GE, Available at SSRN: https://ssrn.com/abstract=1488018 or http://dx.doi.org/10.2139/ssrn.1488018

Federico Revelli (Contact Author)

University of Turin ( email )

Via Po 53
Facolta di Scienze Politiche
10124 Torino
Italy

Benny Geys

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

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