IS THERE TARIFF MIMICKING? THE CASE OF WATER PROVISION IN POLAND

Abstract

The concept of competition in public finance is usually applied to taxes, and it is often used to analyse policies of local governments. There are two types of tax competition: classic for mobile tax base and yardstick competition, in which local politicians compete for political capital being related to comparison of tax rates with neighbouring municipalities. The latter type is often addressed as tax mimicking in which rates in one municipality are following decisions made in close geographic proximity (neighbouring municipalities). In our paper we argue that in Central and Eastern Europe the concept might be even more useful in case of tariffs for local public services than in case of local taxes. It is due to relatively low tax autonomy of local governments and low tax yields collected from local taxes. We test applicability of the mimicking model in explaining variation of tariffs for water provision in three Polish regions. The test includes controlling variables, such as population size, affluence of local budgets and location and is conducted through multiple linear regression model. This method will allow us to determine whether geographical proximity is indeed a decisive factor, or is similarity of tariffs a result of other similarities of socio-economic environment. 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