Local Tax Rates Research Articles

The Politics of School Funding: How State Political Ideology is Associated With the Allocation of Revenue to School Districts

States diverge widely when it comes to education funding choices, leading to substantial differences in how much states spend on schooling, the role of local versus state revenue sources, and relative differences among districts in funding levels. Prior studies have documented that Democratic party control of state governments appears to be associated with higher levels of spending on K-12 education, but beyond that we know little about how political ideology is related to patterns of education funding allocation by states. This study examines this question using a nationwide dataset of school district expenditures from 1999 to 2015. The results indicate that states that are more politically liberal tend to provide more funds (per pupil) to local districts. More liberal states also provide relatively more favorable distributions to districts that are more urban and have larger Black student populations, in addition to perhaps rewarding districts with higher local property tax rates.

Does intense tax competition boost public acceptance for inter-municipal cooperation? Evidence from a survey among German citizens and local politicians

ABSTRACT Intense tax competition among local governments limits their potential for tax revenues. Inter-municipal cooperation (IMC) in general and joint business parks in particular constitute a platform to coordinate local tax rates with neighboring municipalities to reduce tax competition. We ask whether local politicians and citizens are aware of this logic and whether they account for it. Using survey data from German municipalities, we find citizens’ support for joint business parks to increase in the intensity of tax competition but not for other forms of IMC. For local politicians, we do not find any effect of tax competition on IMC support.

The Role of the Local Government in Fostering Entrepreneurship – Evidence from Municipalities in the Kraków Metropolitan Area

Abstract Subject and purpose of work The study was conducted in the municipalities of the Kraków Metropolitan Area. It aims to identify models for supporting local entrepreneurship and assess their effectiveness. The effectiveness of the models was evaluated by measuring the diversity and changes in the number of enterprises in the area. We also presented entrepreneurs’ opinions on their satisfaction with specific policies. Materials and methods: Secondary ( literature and statistical data) and primary data sources were used in the paper. The primary source was a survey among entrepreneurs. The survey research to assess the performance of entrepreneurship policy involved 21 municipalities. We apply a mixed-method approach here (comparative indicator analysis, cluster analysis and Kruskal-Wallis tests). Results: The research demonstrated that the policy involving entrepreneurship support through tax instruments (reduced local tax rates) does not contribute significantly to providing entrepreneurship-fostering conditions. The study revealed that the level of entrepreneurship may be affected more by the expenditure policy, such as the municipality’s efforts to establish special economic zones, organise training, establish business information points, etc. Conclusions: Local governments (LG) that are attractive to investors (such as easily available infrastructure and proximity to markets) should adopt high property-tax rates. The tax is undervalued in peri-urban municipalities (compared to property value) and does not burden the business. Second, LG should focus on hard projects. They should intensify spatial planning and land management to ensure space for business to grow. It will entail conflicts and balancing the needs of diverse social groups, but it must be done to stimulate local socioeconomic development.

Preferential Local Tax Rates for Hotel and Lodging Taxes

Preferential Local Tax Rates for Hotel and Lodging Taxes

Tax Authorities and Local Government Development in Poland

Purpose of the study: The purpose of this article is to examine the influence that tax authorities have had on the growth and progress of local governments in Poland. Through an analysis of the financial autonomy, degree of decentralisation, and local tax policy of Polish municipalities, this research endeavours to illuminate the correlation between tax authorities and the growth of local governments in Poland.
 Methodology: This article conducts a comprehensive literature review on the subject of local tax competition studies in Poland. In addition, empirical experiments conducted on Polish data to determine the concept's applicability throughout the region are included.
 Main findings: Based on the analysis, Poland holds a considerable level of financial autonomy, which is attributed to its authority in determining local tax rates and its freedom to finance investment initiatives. Moreover, research has revealed that the fiscal policies implemented by neighboring municipalities in Poland exert a substantial influence on the choices made by local legislators. This suggests that competition and local tax policy have a significant impact on the evolution of local administrations across the nation.
 Application of the study: The findings of this study have significant implications for policymakers and local authorities in Poland. Understanding the impact of tax authorities on the development of local governments can help in formulating effective fiscal policies and strategies for sustainable development. By recognising the influence of tax regulations and revenue diversification on fiscal sustainability, policymakers can make informed decisions regarding local tax policies and financial autonomy.
 Originality/Novelty of the study: In the article, the author emphasised the examination of the impact of tax authorities on the development of local governments in Poland, particularly in the context of the limited tax autonomy of Polish local authorities. The study delves into the unique challenges and opportunities that arise from this restricted tax autonomy and how it influences the fiscal sustainability and development of local governments in the country. Additionally, the analysis of the effects of municipal tax policy, including the influence of neighbouring municipalities' tax rates on local politicians' decisions, provides valuable insights into the dynamics of tax competition and its implications for local governance in Poland.

Intergovernmental grants and local public finance: An empirical examination in Israel

What is the overall effect of intergovernmental grants on local public finance? While previous studies show an asymmetric effect of changes in intergovernmental grants on local taxation, other budgetary variables are often neglected. We take advantage of a 2011 Israeli reform in the context of a centralized country, which resulted in reduced intergovernmental grants for some local governments and increases for others, and analyse the overall effect on local spending, taxation, and deficits, using event study and difference-in-differences methodologies. Our results show that grant reductions led local governments to increase local tax rates and their annual deficits, but did not change local spending levels while revealing the mechanism behind rates adjustments. Local governments which experienced an increase in their grants increased their expenditures and lowered their tax rates and deficit levels. We find an asymmetric effect on tax rates: a grant reduction causes a tax hike which is twice as large as the tax reductions following a grant increase. This asymmetric effect can create tax hikes when grants decrease and then increase to their original level. Our results help establish the effect of intergovernmental grants on local taxation, and their effect on expenditure and fiscal balance in a centralized country.

The Role of Property Assessment Oversight in School Finance Inequality

This paper explores an under-studied channel for school finance inequality: property assessment. School districts have historically relied on local tax revenues (typically property taxes) to fund schools, which can generate disparities in funding across districts. Many states passed school finance reforms that give more state funding to poorer districts. These formulas typically discourage school districts from offsetting state funding by reducing local tax rates (“crowd out”). However, many reforms have not adequately addressed another source of inequality: property assessment accuracy and equity. Moreover, state reform can unintentionally subsidize property underassessment. We analyze a state government intervention to address property assessment inequities within and across school districts. We use difference-in-differences and county- and school district-level administrative data to find the intervention boosted assessments by 32 percent. Assessment equity improved substantially and local property revenues temporarily increased by 17 percent. Local fiscal and institutional capacity played a role in assessment inequity pre-reform. Our results suggest that underassessment can compound funding inequality across districts in states that rely on property wealth to fund schools. Therefore, effective state oversight in property assessments is needed to ensure the integrity of funding systems that distribute state funding to districts on the basis of their assessed property wealth.

Immigrant inventors and local income taxes: Evidence from Swiss municipalities

This paper studies the relationship between local personal income tax rates and the attractiveness of municipalities as residential locations for immigrant inventors in Switzerland. Exploiting sharp differences in top income tax rates across state borders, I find an elasticity of the probability that an inventor takes residence in a border municipality with respect to the top net-of-tax rate of around 3.2. Additional evidence suggests that inventors’ residential location choices are consequential for the localization of entrepreneurial activity and local knowledge spillovers.

Does land conservation raise property taxes? Evidence from New England cities and towns

Protected lands provide high ecological and social value, yet a perception that land protection erodes local property tax bases and shifts tax burdens to other owners creates barriers for new protection. We investigate the impact of land protection on local property tax rates using panel data from more than 1400 towns and cities in New England between 1990 and 2015, including both ownership and easement-based protection. We find that on average, new protection results in a small increase in annual tax rates, with an expected change of $0.0231 per $1000 of value for a 1 percentage point increase in the percent of municipal area protected. This corresponds to an increase in a homeowner's annual property tax bill of $1.16 per $100,000 of value for 100 acres of new land protection. We do not find that taxes continue to increase over time or reduce municipal expenditures. However, for towns that are growing slowly, have lower household incomes, or use municipal land protection, we estimate greater tax bill increases of up to $10 for each $100,000 of value. These results provide evidence that land protection does not have a substantial impact on property taxes, but also highlight the importance of maintaining and expanding public compensation mechanisms, such as payments in lieu of taxes, where expected burdens from new protection may be greater.

Does capital bear the burden of local corporate taxes? Evidence from Germany

Exploiting the German 2008 tax reform we employ an event study design to assess the effects of local corporate taxes on stock prices. We match firms to the local tax rates at their respective headquarters and analyze the differential stock market responses to the reform decision. We find that firms which are located in high tax jurisdictions and therefore face a possible high tax reduction significantly outperform firms in low tax jurisdictions during the decision-making process. The results indicate that firm owners partially bear the burden of local corporate taxes.

Do party politics still matter? Examining the effect of parties, governments and government changes on the local tax rate in Sweden

AbstractAccording to partisan theory, variations in policy choices and outputs originate from the party composition of the government studied. In this study, we take a novel approach to address such assumptions by linking changes in municipal taxes with local government changes. We also add a baseline scenario in which we examine whether the composition of the local government affects tax levels. Drawing on a dataset that contains official Swedish statistics from 1994 to 2018, we find convincing support for the partisan effect. Tax levels are higher under left-wing rule, and more specifically, tax cuts particularly occur when left-wing governments are replaced by right-wing ones. These results do not vanish when controls are accounted for, while it can be particularly noticed that the condition of the municipal economy influences partisan ambitions. These findings thereby contradict prior theoretical assumptions that the local arena is free from ideological battles.

Bagaimana Hubungan Pusat dan Daerah Pasca Penetapan Undang-Undang Cipta Kerja? Kasus Penetapan Pajak Daerah

The relationship between the Central Government and Regional Governments in determining regional tax rates and regional levies has overlapping authorities after the enactment of the Job Creation Act. This study proposes two problem formulations. First, how is the relationship between the central government and regional governments in determining local tax rates after the enactment of Law Number 11 of 2020 concerning Job Creation? Second, what are the juridical implications of setting local tax rates after the enactment of Law Number 11 of 2020 on the Authority of Regional Governments? The research method used is juridical-normative by using primary, secondary, and tertiary legal materials. The approach used is a statutory and conceptual approach. The results reveal that first, the relationship between the Central Government and Regional Governments in determining regional tax rates and regional retributions after the enactment of the Job Creation Law is carried out by the Regional Government with the involvement of the Central Government. It is known that at the time of the formation of regulations in the field of regional tax rates, the Central Government can change the tax rates and levy rates by determining the nationally applicable tax and levy rates and evaluating both Regional Regulations and Draft Regional Regulations regarding taxes and levies that hinder investment ecosystems and ease of doing business. Second, prior to the enactment of the Job Creation Act, the regional government had the authority to determine regional tax rates and regional retributions, so that in this case, the decentralization system runs fully, while after the enactment of the Job Creation Act, the regional government's authority in administering the government, in particular the area of regional taxes and levies, does not fully reflect the decentralized system due to intervention from the central government. Keywords: Relations, Central Government, Local Government, Tariffs, Local Taxes

Exploring the Impact and Path of Environmental Protection Tax on Different Air Pollutant Emissions.

Existing studies have examined the double dividend effect of environmental protection tax. However, less attention has been paid to the influencing factors and transmission paths of the pollution abatement effect of the environmental protection tax. Based on the panel data for 30 of China’s provinces from 2007 to 2019, this study discusses the environmental protection tax’s influencing factors and transmission paths on the emission scale and intensity of different air pollutants through the panel threshold regression model and mediating effect model. The results show that: (1) the environmental protection tax has a positive emission reduction effect on the emission scale or emission intensity of sulfur dioxide (SO2) and nitrogen oxides (NO2); (2) the abatement effect is stronger when per capita gross regional product is above the threshold value; (3) technological progress, economic growth, and industrial structure all have positive mediating effects. Therefore, the local environmental protection tax rate should be set with comprehensive consideration of regional economic development, industrial structure, and technological progress.

The Three Parties in the Race to the Bottom: Host Governments, Home Governments and Multinational Companies

Most studies of tax competition and the race to the bottom focus on potential host countries competing for mobile capital, neglecting the role of corporate tax planning and of home governments that facilitate this planning. This neglect in part reflects the narrow view frequently taken of the policy instruments that countries have available in tax competition. For example, hightax host governments can permit income to be shifted out to tax havens as a way of attracting mobile companies. Home countries will cooperate in this shift if they think the benefit to their companies is greater than any reduction in the domestic tax base. We use various types of U.S. data, including firm level tax files, to identify the role of the three parties (host governments, home governments and multinational companies) in the evolution of tax burdens on U.S. companies abroad from 1992 to 2002. This period is of particular interest because the United States introduced regulations in 1997 that greatly simplified the use of more aggressive tax planning techniques.The evidence indicates that from 1992 to 1998 the decline in effective tax rates on U.S. companies was driven largely by host governments defending their market share. But after 1998, tax avoidance behavior seems much more important. Effective tax rates on U.S. companies had a much weaker link with local statutory tax rates. Furthermore, the disparity in the reported profitability of subsidiaries in high-tax and low-tax jurisdictions grew substantially.After 1997, there was a very large growth in intercompany payments and a parallel growth of holding company income. We attempt to estimate how much of these payments were deductible in the host country, and conclude that by 2002 the companies were saving about $7.0 billion per year by using the more aggressive planning strategies. This amounts to about 4% of foreign direct investment income and about 15% of their foreign tax burden.

Fiscal Equalization Pushes Up Local Tax Rates: Evidence from a Swiss Reform

Fiscal Equalization Pushes Up Local Tax Rates: Evidence from a Swiss Reform

What happens when municipalities run corporations? Empirical evidence from 290 Swedish municipalities

ABSTRACT Local governments are increasingly relying on municipally owned corporations (MOCs) to provide public services. Some describe this development as a rational response to austerity challenges and emphasise the cost-efficiency of MOCs (‘the optimistic view’). Others identify complications and associate MOCs with weak supervision, lack of accountability, and corruption risks (‘the sceptical view’). Hitherto, no studies have analysed these opposing claims on MOCs in the one and same inquiry. We address this gap by focusing on Sweden, which has experienced a dramatic growth in the number of MOCs. We examine the association between the number of MOCs, the business climate, satisfaction with local government, local tax rates, and a corruption index for all 290 Swedish municipalities. Putting the ‘optimistic view’ into doubt, results indicate that municipalities relying heavily on MOCs are associated with more perceived corruption and higher taxes but do not have more satisfied citizens nor a better business climate.

Income and Household Location Choice in Switzerland

We examine household location choice for eight cities in Switzerland. In line with other studies for Europe and the U.S., empirical evidence for the income gradient is weak in standard regression specifications that control for household characteristics and amenities. We provide a possible solution for this long-standing empirical puzzle and obtain negatively sloped income gradients that are postulated by the monocentric city model. We show that municipality taxes, a variable with particular spatial variation in Switzerland, play a dominant role in explaining households' cross-sectional arrangements. This has significant implications for policymakers, their local tax rate decisions, and the maximization of the tax substrate.

Boxholm tea party: Taxation and voter turnout in a mature democracy

The link between taxation and representation is generally considered foundational to the emergence of democratic governance. Nevertheless, the empirical relationship between taxation and the extent to which citizens actually exert representation by turning out to vote remains virtually unexplored. Using a panel of all Swedish municipalities from 1979 to 2018, I find that hikes in local tax rates are linked to increased municipal voter turnout. Accounting for a wide range of confounders, including turnout in concurrent parliamentary- and county elections, these results indicate an important untapped explanation for changes in turnout, while offering a rare explicit test of the taxation-representation argument drawn from a mature democracy.

The revenue and base effects of local tax hikes: evidence from a quasi-experiment

Due to a reform of the local equalization scheme in 2003, a set of municipalities in the German state of North Rhine-Westphalia (NRW) increased their local property and business tax rates by one to two percentage points, while the remaining municipalities kept their rates constant. I use this variation across municipalities and over time to study the revenue and base effects of local property and business tax hikes in a generalized difference-in-differences design. The results suggest that the property tax hikes had even in the long-run a revenue elasticity of unity. Accordingly, I find no adverse effects on property tax bases. For the business tax, I find no significant effects on revenues and bases. Furthermore, there are also no effects on broader economic outcomes such as local employment, firms’ wage bill, and property prices. Overall, increasing local tax rates by one to two percentage points does not seem to affect the local economy adversely.

Estimating local fiscal multipliers using political connections

We use political connections between central and local governments in China to identify the effects of government spending. Our key innovation is using changes of central government ministers as a source of exogenous variation in earmarked transfers received by prefectural city-level governments. The analysis reveals that the increase in earmarked transfers is temporary and local effective tax rates do not respond to such fiscal expansions. Given that using cross-regional analysis for a monetary union can difference out the influence of monetary policy, the fiscal shock we study is a temporary, non-tax financed and no-monetary-policy-response government spending shock. We find the local fiscal multiplier in China is above one and there are no significant spillover effects from local government spending.