|Upload paper||858 KB|
The introduction of a new real estate taxes in Italy in 2011 generated a natural ex- periment, which is useful to test political budget cycles, i.e. the strategic choice of fiscal variables in relation to elections. We do find substantial evidence of political budget cy- cles, with municipalities choosing lower tax rates when close to elections. We observe this budget cycle only for smaller municipalities where the tax was more likely to be the single most important issue for
the local government. Cities close to elections with large deficits did not set lower rates before elections, probably because they felt the binding constraints
of budget rules.
NBER WP 20570