Testing yardstick competition through a vote-function: evidence from the Walloon municipalities

Abstract

This paper aims at testing yardstick competition among the local jurisdictions of the Walloon Region (Southern part of Belgium) by directly testing its seminal hypothesis: yardstick voting. Actually the theory states that local incumbents are mimicking themselves because they fear punishment for implementing higher tax rates than in the neighbouring jurisdictions. Our research question is whether voters punish their incumbents for higher tax rates?We estimate different specifications of a vote function. None of them supports the yardstick voting hypothesis. One can thus exclude yardstick voting as a statistically supported behaviour of taxpayers. And we can exclude yardstick competition as a source of tax interactions in the Walloon region if yardstick voting is a testable hypothesis of yardstick competition. Indeed, if the tax rates of the neighbouring jurisdictions do not influence voters’ choices, incumbents do not have to fear an electoral punishment and then mimicking each other is meaningless.