Business Taxes and the Electoral Cycle

By Dirk Foremny, Nadine Riedel. Social Science Research Network, 2012

154 citations recorded by the source corpus.

The purpose of this paper is to assess whether the timing of elections affects tax policy choices. To do so, we exploit information on the German local business tax which is set autonomously by German municipalities. As the dates for local council elections vary across German states, the data allows us to disentangle effects related to the timing of elections from common trends. The findings support the notion of a political cycle in tax setting as the growth in local business tax rates is significantly reduced in the election year and the year prior to the election, while it significantly increases in the year after the election. This pattern turns out to be robust against a number of sensitivity checks.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/9634fc5c211063d1bbd8b1b2070678368a5f11ea

Citations in the corpus

• Political Budget Cycles: Evidence from Italian Cities (2017, unknown): “…budget cycles is also found by Reid (1998) and Kneebone and McKenzie (2001) for Canadian provinces, and by Drazen and Eslava (2010) for Colombia.7 Foremny and Riedel (2014) document evidence of political budget cycles in a sample of German municipalities by looking at business taxes.8 More…”
• Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany (2018, unknown): “Instead of including simple year fixed effects, we include “state × year” fixed effects – which account for any shock omitted at the state-level, such as municipal election years, which have recently been shown to affect LBT rates (Foremny and Riedel, 2014).”