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Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

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Volume 13, Issue 2 (Jun 2013)

Issues

Yardstick Competition in case of the Czech Property Tax

Lucie Sedmihradská
  • Corresponding author
  • Department of Public Finance, University of Economics, Prague, nám. W. Churcilla 4, 130 67, Praha 3
  • Email:
Published Online: 2013-07-09 | DOI: https://doi.org/10.2478/revecp-2013-0002

Abstract

Introduction of the local coefficient in the property tax law since 2009 gave a significant tax authority to Czech municipalities; on average they can up to quadruple their property tax revenue which means increasing their total revenue by more than 10%. Czech municipalities appeared very cautious when exercising this new autonomy and only less than 8% of them applied the local coefficient in 2013.

The theory of yardstick competition offers one of the possible explanations of this reluctance: Voters do not vote for politicians who increase taxes unless the politicians in the neighbouring jurisdictions increase taxes as well. So municipal politicians are carefully observing what others do and approve the local coefficient with prudence.

The purpose of this paper is to evaluate the usage of the local coefficient with special regard to spatial distribution and impacts on re-election and to verify the existence of the yardstick competition among Czech municipalities in case of the property tax.

The results of the difference of means test using data for 206 municipalities with extended scope comply with this theory: (1) politicians who applied local coefficient in 2010 got re-elected in a significantly lesser number of municipalities than those who did not, and (2) in all years analyzed, municipalities applying local coefficient are surrounded by a higher share of municipalities with local coefficient than municipalities without it.

Keywords : tax autonomy; property tax; yardstick competition

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About the article

The paper was elaborated as one of the outputs of the research project of the Faculty of Finance and Accounting, University of Economics, Prague, which is realized in the framework of the institutional support VŠE IP100040. I am grateful to Veronika Eretová for preparation of the maps, Michal Votoček for compilation of the list of the neighboring municipalities, and Richard Nagrand for preparing the election data.


Published Online: 2013-07-09

Published in Print: 2013-06-01


Citation Information: Review of Economic Perspectives, ISSN (Online) 1804-1663, ISSN (Print) 1213-2446, DOI: https://doi.org/10.2478/revecp-2013-0002.

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