The Effects of Politics on Local Tax Setting: Evidence from France

This article investigates the effect of the intensity of political competition on the tax choices by local governments. More precisely, we study whether local governments determine their tax rates more in a Leviathan way, exploiting a low political competition to vote high tax rates, or in a partisan way, fiscal choices by leftwing governments being significantly in contrast with those by rightwing ones. We focus on the tax behaviour of the French departments and estimate for the local business tax a spatial model in 1999. Our results suggest that elected representatives adopt a partisan behaviour rather than a Leviathan behaviour in their fiscal choices. Key-words: local government, spatial econometrics, political competition, partisan behaviour JEL Classification: H71, H73 ♦ Corresponding author, Faculté des Sciences Economiques et sociales, Université des Sciences et Technologies de Lille, F-59655 Villeneuve d’Ascq, France, [email protected]