Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/61414
Authors: 
Freier, Ronny
Odendahl, Christian
Year of Publication: 
2012
Series/Report no.: 
DIW Discussion Papers 1205
Abstract: 
This paper estimates the effect of political power on tax policies in municipal councils under a proportional election system. The main challenge in estimating the causal effect of parties on policy is to isolate the effect of power from underlying voter preferences and the selection effect of parties. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. Using data from German municipalities in the state of Bavaria, our estimation results suggest that power does matter. Somewhat surprisingly, the center-left party SPD is found to lower all three locally controlled taxes, whereas The Greens increase both property taxes considerably. These results remain robust across a range of specifications. What is more, the effect of the SPD is confirmed by a simple regression discontinuity estimation of mayors in these local governments.
Subjects: 
local taxation
local election
municipality data instrumental variable approach
JEL: 
H10
H11
H77
Document Type: 
Working Paper

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