Politicians' preferences on local tax rates: An empirical analysis

Abstract

This paper investigates politicians' opinions about the level of local tax rates. Politicians are assumed to have the objective of maximising expected votes. Their opinions regarding the level of tax rates reflect their beliefs about the political cost (expected loss in votes) associated with the tax rate, and also their attitudes towards taxation in general. We present a test aimed at identifying relevant determinants of both politicians' beliefs and attitudes. An analysis of politicians' opinions allows us to test indirectly some central hypotheses of tax choice models. Using a sample of 683 Flemish local politicians, we have undertaken an ordered probit analysis of opinions on the level of local income and local property taxes. The actual level of taxation, the ideological position of the respondent, and membership of the incumbent or opposition party affect opinions about the level of both taxes. We find evidence that tax policy in neighbouring jurisdictions affects the perceived political cost of one's own property tax rate. For opinions on the level of local income tax rates, the ideological position of the electorate and interest group activity are relevant determinants.