Working Paper: NBER ID: w4041
Authors: Timothy Besley; Anne Case
Abstract: This paper presents a theoretical and empirical investigation of tax competition when voters use the tax policy of neighboring jurisdictions as information to evaluate the performance of their incumbent politicians. We show that this has implications both for voter tolerance of high taxes and for the process of tax setting itself, Our empirical results, which use two different tax data sets, confirm the importance of neighbors' taxes both on the probability of incumbent reelection and on tax setting behavior.
Keywords: Tax Competition; Electoral Accountability; Yardstick Competition
JEL Codes: H71; H73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Neighboring jurisdictions' tax policies (H73) | Incumbents' reelection probability (D72) |
| High taxes in a state (H71) | Incumbents' chances of reelection (D72) |
| Electoral competition (D72) | Tax setting behavior (H26) |
| Tax increases (H29) | Unseating of incumbents (D72) |
| Changes in neighboring states' tax liabilities (H73) | Incumbent defeat (D72) |