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Choosing between Service Fees and Budget Funding to Pay for Local Services: Empirical Evidence from Spain

Choosing between Service Fees and Budget Funding to Pay for Local Services: Empirical Evidence... In this paper we investigate how local governments finance public services, and their choice between budget funding and flat service fees. On the basis of a simple model of electoral competition we predict that the tax policy will be extreme (either progressive or conservative) only if both the voting majority's economic interests and the valence point to the same ideological side. If ideological and economic interests diverge, then the equilibrium policy will be a moderate one. From our empirical analysis we find that progressive mayors in progressive constituencies use budget funding to a greater degree, whereas conservative mayors in conservative constituencies prefer flat service fees. When the political affiliation of the mayor and the ideological bias of the constituency diverge, more moderate policies are chosen. We find also that service-specific deficits are lower in cities with private production of solid waste service. Thus policy makers may have used privatization as a means to reduce the political cost of increasing service-specific taxes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Environment and Planning C: Government and Policy SAGE

Choosing between Service Fees and Budget Funding to Pay for Local Services: Empirical Evidence from Spain

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References (45)

Publisher
SAGE
Copyright
© 2010 SAGE Publications
ISSN
0263-774x
eISSN
1472-3425
DOI
10.1068/c08112r
Publisher site
See Article on Publisher Site

Abstract

In this paper we investigate how local governments finance public services, and their choice between budget funding and flat service fees. On the basis of a simple model of electoral competition we predict that the tax policy will be extreme (either progressive or conservative) only if both the voting majority's economic interests and the valence point to the same ideological side. If ideological and economic interests diverge, then the equilibrium policy will be a moderate one. From our empirical analysis we find that progressive mayors in progressive constituencies use budget funding to a greater degree, whereas conservative mayors in conservative constituencies prefer flat service fees. When the political affiliation of the mayor and the ideological bias of the constituency diverge, more moderate policies are chosen. We find also that service-specific deficits are lower in cities with private production of solid waste service. Thus policy makers may have used privatization as a means to reduce the political cost of increasing service-specific taxes.

Journal

Environment and Planning C: Government and PolicySAGE

Published: Feb 1, 2010

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