Economic and political foundations of local tax structures: an empirical investigation of the tax mix of Flemish municipalities

This paper investigates the economic and political determinants of the local tax mix in the Flemish region of Belgium, where local governments enjoy extensive fiscal autonomy and have a wide choice of available tax instruments. Using panel data on 289 Flemish municipalities over the period 1995-2002, we estimate a system of five reduced-form tax revenue share equations (income, property, business, user fees and other own revenues) and find that economics plays a significantly more important role than politics in shaping the observed local tax mix. Moreover, the analysis uncovers virtually no evidence of inter-municipal competition in setting the local tax mix.