Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition
Timothy Besley, Anne Case
NBER Working Paper No. 4041
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.
Published: American Economic Review, Volume 85, No. 1, March 1995: pp. 25-45