Partisan Influence on the Local Tax Burden in the Netherlands

Abstract

This paper analyses the role of partisan politics in determining the local tax burden. Property taxes are the most important revenue source which municipalities in the Netherlands can decide upon themselves. Using a new data set on Dutch local property taxes in 1996, it is concluded that municipalities with a council dominated by left wing parties have a higher tax burden. We also find that larger coalitions have lower levels of taxation. Finally, tax exporting increases tax rates. The role of partisan politics in determining public policy is a contentious issue. Whereas some authors argue that partisan politics play little if any role, Hibbs (1987) and others pose that ideological differences are important in determining public policy. In this view left wing political parties are believed to be more in favour of an active state and income redistribution than right wing parties. In terms of taxation: it is expected that right wing government will be more favourable towards a lower tax burden than left wing govern- ments. Some authors argue that over the last two decades, say, the latitude for partisanship at the national level has been reduced tremendously. Due to financial and economic integration, partisan preferences may have become less important in shaping national tax and spending policies. This could per- haps also explain that there is only mixed empirical evidence in support of the partisan hypothesis (see Cusack, 1997 for further discussion). So far, only a few studies have examined the impact of partisan polit- ics at the non-national level. Abrams and Dougan (1986) conclude that US states with a liberal governor have a relatively higher level of state spending. Ibrahim (1994) analyses the relationship between spending of counties in the UK and the "political colour" of the county's government. He finds that La- bour governments spend more than Conservative ones, but this conclusion is suspect as the author does not include control variables. Borge (1995) reports higher fee income for local Norwegian governments under socialist reign.