Working Paper: NBER ID: w20570
Authors: Alberto Alesina; Matteo Paradisi
Abstract: The introduction of a new real estate taxes in Italy in 2011 generated a natural experiment, which is useful to test political budget cycles, i.e. the strategic choice of fiscal variables in relation to elections. We do find substantial evidence of political budget cycles, with municipalities choosing lower tax rates when close to elections. We observe this budget cycle only for smaller municipalities where the tax was more likely to be the single most important issue for the local government. Cities close to elections with large deficits did not set lower rates before elections, probably because they felt the binding constraints of budget rules.
Keywords: political budget cycles; real estate tax; Italy; municipalities; elections
JEL Codes: E62; H3; H7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upcoming elections (K16) | lower tax rates (H29) |
| municipality size (H70) | lower tax rates (H29) |
| larger deficits (H62) | no change in tax rates (H29) |
| political budget cycles (H61) | lower civic engagement (K16) |
| political budget cycles (H61) | weaker accountability (G34) |