Spatial interactions in local policy making: applicability of tax competition and tax mimicking concepts to local government policies on tax rates and user charges for services in Poland

The main research question is how spatial proximity of other agents (neighboring municipalities) influences decision making of local politicians deciding upon user charges for local public services and rates of local taxes. The paper refers to concepts of tax competition and tax mimicking but it extends its usefulness beyond local taxes only, asking also about its applicability for decisions concerning fees for services such as water provision, fares for local public transport, or parking fees. There are two types of competition discussed in the paper: classic competition for mobile tax base and yardstick competition, in which local politicians compete for political capital being related to comparison of tax rates with neighboring municipalities. The latter meaning is more applicable to user charges for services. The paper discusses theoretical concepts but also tests its applicability empirically through the multi-variate regression models. It suggests that due to relative importance for consumers, tax mimicking effect might be more visible in user charges than in policies regarding rates of local taxes. The paper is based on results of the “Fees for local public services - financial and political importance” research project. The project is funded by Narodowe Centrum Nauki (National Science Centre) grant number UMO-2015/19/B/HS4/02898.