Vote expectations and pre-electoral tariff cuts in Flemish municipalities

Using data covering 3 election moments (1988-2000) for 294 Flemish municipalities we examine whether the decision to cut tariffs before elections depends on the government’s expectations of staying into office. Election moments are central to both the political budget cycle literature and the strategic debt models. The combination of both theories could suggest that, at least in theory, both winning and loosing governments seem to benefit from preelectoral tariff reductions and as such we expect to find a great many municipalities to engage into tariff cuts. The dataset however shows this is clearly not the case. We argue that the differences in the fiscal policy reaction of governments facing elections might have to do with their expectations of staying into office. In our analysis we make the decision to change tariffs dependent on the expected vote percentage of the government party (parties). As we do not possess reliable ex ante data on the perceived re-election probability, we estimate a vote-function to predict the percentage of votes. Our analysis shows that tariff reductions in election years are more prone when governments expect not to reach majority again in next elections

Vote expectations and pre-electoral tariff cuts in Flemish municipalities

Using data covering 3 election moments (1988-2000) for 294 Flemish municipalities we examine whether the decision to cut tariffs before elections depends on the government’s expectations of staying into office. Election moments are central to both the political budget cycle literature and the strategic debt models. The combination of both theories could suggest that, at least in theory, both winning and loosing governments seem to benefit from pre-electoral tariff reductions and as such we expect to find a great many municipalities to engage into tariff cuts. The dataset however shows this is clearly not the case. We argue that the differences in the fiscal policy reaction of governments facing elections might have to do with their expectations of staying into office. In our analysis we make the decision to change tariffs dependent on the expected vote percentage of the government party (parties). As we do not possess reliable ex ante data on the perceived re-election probability, we estimate a vote-function to predict the percentage of votes. Our analysis shows that tariff reductions in election years are more prone when governments expect not to reach majority again in next elections

Politics and public infrastructure investments in local governments: empirical evidence from Flemish municipalities (1996-2006)

In this paper, we estimate a public infrastructure investment function using a panel data set of 307 Flemish municipalities for the period 1996-2006. We particularly draw attention to political determinants of public infrastructure investment decisions. We show that the characteristics of the government, such as partisan affiliation and fragmentation, affect the level of public infrastructure investments Local governments are also sensitive to the investment policy of neighbouring municipalities. There is a positive interaction effect that changes own investments by 20% of that of neighbouring municipalities. Finally, elections obviously have an impact on investment policy. Investments increase the nearer elections come, with highest investments in the year before elections

Strategic Debt in Flemish municipalities

This paper discusses the literature on strategic use of debt models and empirically tests the seminal models of Persson & Svensson (1989) and Alesina & Tabellini (1990) on a dataset of Flemish municipalities. The literature on strategic use of debt originates from the question whether incumbent policy makers run higher budget deficits if they expect an electoral defeat. We introduce a vote function to estimate the probability of electoral defeat and present evidence of strategic debt in line with Persson & Svensson (1989). Moreover, we show that coalition governments in particular are more likely to increase debt strategically

The effect of income shifting on the local income tax revenues of Flemish municipalities

Income shifting refers to the transfer of the tax base to a tax characterised by lower average or marginal rates. In the literature the focus is mostly on the shift from corporate taxes to income taxes and the effects of this shift on central governments revenues. In this paper, we focus on the effect on local tax revenues. In Belgium the local governments do not have access to the tax income from the corporate tax, which is levied on corporate income from specific legal persons. Only when a business is set up as a sole proprietorship, local governments’ income is affected, through the impact on the local income tax (LIT). We test whether the shift to other corporation forms influences the local government tax revenue per capita for 308 Flemish municipalities for the period 2005-2013. The cross-section fixed effects panel estimations show that the exit of sole proprietorships significantly impacts the creation of legal persons, which is in line with what is expected if income shifting should occur. In addition, the per capita revenues from the local income tax (LIT) are negatively affected by the exit of natural persons. Importantly, the analysis shows that the establishment of new corporations results in a significant decrease in the local per capita revenues of the local income tax (LIT), when controlling for community fixed effects and economic conditions

Political fragmentation and projected tax revenues: evidence from Flemish municipalities

The level of revenues pocketed by a government during the fiscal year often deviates from that projected by this government in its budget. Despite a flourishing literature on, for example, the technical or procedural determinants of such forecast errors, little is yet known about how political stratagems may affect forecast errors. In the present paper, we analyse whether differences in the level of government fragmentation are useful in explaining local government tax revenue forecast errors – controlling for various other factors. Using data on 242 Flemish municipalities for the period 1992-2002, we find that two-party governments are more optimistic than single-party governments. In contrast to our initial expectations, governments with at least three parties are significantly more careful (or less optimistic) in their revenue projections than single- or twoparty governments. -- Die Einnahmen einer Regierung während eines Steuerjahres weichen oft von den vorherigen Budgetkalkulationen dieser Regierung ab. Diese Prognosefehler sind zwar schon bezüglich ihres technischen und institutionellen Kontextes empirisch erforscht worden, allerdings fehlt es bisher an Kenntnissen, was den Effekt politischer Variablen betrifft. In der vorliegenden Veröffentlichung wird untersucht, ob die politische Fragmentierung der lokalen Regierungen einen wichtigen Faktor zur Erklärung von Prognosefehlern darstellt, dabei immer kontrollierend für verschiedene andere Elemente. Unsere empirische Analyse von 242 der 308 flämischen Gemeinden im Zeitraum 1992-2002 zeigt erstens, dass Regierungen mit zwei Parteien eher optimistisch ihr Budget planen. Sie setzen mehr Einnahmen voraus, als sie während des Steuerjahres bekommen. Im Gegensatz zu unserer Hypothese zeigt die Analyse aber auch, dass ab 3 Parteien in einer Regierung die Überschätzung der Einnahmen geringer wird.Revenue projections,forecast accuracy,local taxation,Flemish municipalities,government fragmentation

Houses and/or Jobs: Ownership and the Labour Market in Belgian Districts

In a number of papers A.J. Oswald (1996, 1997) argues that high rates of home ownership may imply inferior labour market outcomes. This paper tests the Oswald hypothesis in a panel of 42 Belgian districts since the 1970s. The use of data going back to 1970 allows us to embed the Oswald hypothesis in a broader model including other key determinants of employment like labour costs and productivity, the skill level of the population, and demography. Considering that ownership may be endogenous to (shocks in) employment, we use IV estimation methods. Overall, we find evidence in favour of the Oswald hypothesis. We observe that a 1 percentage point rise in the rate of home ownership in a district implies a statistically significant fall in the employment rate by about 0.3 percentage points. Our results underscore the importance of including other determinants of employment, of controlling for unobserved fixed regional and time effects, and of appropriately dealing with endogeneity. Disregarding these issues, as is often done in the macro labour literature, may imply very different estimation results. Additional estimation reveals that the size of the Oswald effect falls in the fraction of high skilled in a district.employment, home ownership, Oswald hypothesis, Belgian regions, panel data

Vote expectations and pre-electoral tariff cuts in Flemish municipalities

Using data covering 5 election moments (1976-2000) for 308 Flemish municipalities we look for evidence whether local governments reduce the tariffs of the two main local taxes before elections. Election moments are central to both the political budget cycle literature and the strategic debt models. Next to partisan motives, the political budget cycle theory refers to incumbents’ opportunistic motives: governments manipulate fiscal policy facing elections to attract voters. According to strategic debt models expenditure drift and less harsh fiscal policies might also be a means to increase the debt burden left to the next government, which in turn will affect the fiscal stance during the next legislation. As such, at least in theory, both winning and loosing governments seem to benefit from pre-electoral tariff reductions and as such we expect to find a great many municipalities to engage into tariff cuts. The dataset however shows this is clearly not the case. We argue that the differences in the fiscal policy reaction of governments facing elections might have to do with their expectations of staying into office. In our analysis we make the decision to cut tariffs depending on the expected vote percentage of the government party (parties).As we do not possess reliable data on the perceived re-election probability measured at the moment elections are upcoming, we rely on proxy variables to measure these vote expectations. Instead of working with post election outcomes, as Pettersson-Lidbom (2001) does, we make use of the percentage of votes which is predicted by an appropriate vote function. This paper contributes to the literature in several ways. By focusing on vote expectations, this analysis is integrating insights of both the PBC-models, the SUD-models and the large literature on vote and popularity functions. Contrary to former research the most visible tariff changes are central to the discussion, rather than changes in tax revenues or tax revenues over GDP. Finally, we hope to extend the knowledge on local fiscal policy