Spatial diversification of property tax policy – Searching for yardstick competition in Polish metropolitan areas.

This article contributes to the ongoing debate on local tax policy-making, in particular regarding yardstick competition in the area-based property taxation system. Based on data from 300 municipalities located in ten metropolitan areas in Poland over ten years, we identify whether we are faced with tax mimicking induced by political considerations in tax rates setting. In particular, we seek to identify whether the spatial interdependence of property tax rates set by local governments of Polish municipalities is driven by a yardstick competition mechanism. The analytical approach is based on the estimation of the spatial residential property tax reaction function by using spatial autoregressive panel models. In order to verify the presence of yardstick competition, we include a set of purely political variables in the models and test their impact on tax rate decisions. The results confirm the evidence of yardstick competition, which, however, is present only in a few of the examined metropolitan areas. We found nominal tax rates for residential buildings that were significantly lower in election years, and empirical evidence of several political factors influencing local tax policies in Poland. • Property tax rates in the area-based system can be a target of yardstick competition. • Tax mimicking is recognised in three out of ten examined metropolitan areas in Poland. • Long-term mayors in office set higher property tax rates. • Political trends spatially vary despite the same incentives and institutional settings. [ABSTRACT FROM AUTHOR]