H71 - State and Local Taxation, Subsidies, and RevenueReturn

From the general perspective, municipalities are economic organisations like private companies with their legal subjectivity, own revenues, and property. To better understand their financial management, it is desirable to conduct relevant empirical research, which lacks in the case of the Czech municipal sector and Czech municipalities. This paper aims to analyse and identify the financial behaviour of Czech municipalities within the post-crisis period focusing on the influence of internal and external vulnerability factors. The panel data and linear regression model (fixed-effect model) were used to evaluate how an external crisis affected the financial management of municipalities. The behaviour of municipal financial management is reflected through financial health, financial dependency, or budget rigidity. The outcomes of the analysis are presented and put into perspective with relevant international research.

This paper contributes to the literature on fiscal decentralization by presenting a formal model of the interaction between the central and local governments (CG and LGs, respectively) where LGs may differ in their degree of political alignment with CG. The non-cooperative optimal behaviour of the agents reveals that optimal tax increases with the extent of fiscal decentralization (FD), political unison and spillovers across localities, while LGs' optimal tax collection effort is negatively associated with all of these parameters. The first novel finding of our study is that both welfare peaks and income distribution are more equitable at a lower level of FD in the case of spillovers than in the case of no spillovers, which supports the decentralization theorem. The second novel finding is that both the amount of redistributable income and central government utility increase with the degree of political unison.

This study analyses macroeconomic factors, especially the level of GDP and its changes, in terms of their impact on the revenues of Polish local governments from 1999 to 2016. The importance of the factors in managing local finances is growing because of the increasing threats of globalisation and economies becoming more vulnerable to exogenous shocks. This article attempts to identify the structural weaknesses of the local government revenue system in Poland in the context of macroeconomic circumstances. It follows from our research that the property tax and general state grants are relatively insensitive to GDP changes and that they are capable of ensuring local revenue stability during a crisis. Greater sensitivity to economic fluctuations is shown by shared income taxes. The study analyses Central Statistical Office and Eurostat data using an advanced research approach, the key elements of which are cointegration analysis and a vector error correction model.

Each year, a part of the budget of the City of Prague is allocated among its city districts in the form of subsidies. The objective of the City of Prague is to find such a set of criteria and such a set of relative weights that estimate the expected cost of local public administration best. The objective of each city district is subsidy maximization by influencing the criteria and weights. Two quantitative methods that set the weights without participation of decision makers are presented. The first method is based on the multiple-criteria decision making and the second one on the zero-sum gains DEA model. The illustrative calculations for the year 2012 are presented. An application of the multiple-criteria decision making model requires re-allocation of 8.3% of the total subsidy budget in comparison to the real subsidy values in the year 2012. An application of the zero-some gains DEA model requires re-allocation of 14.0% of the total subsidy to city districts. We are not able to offer any definitive answers about which allocation model is the best one, however, an analysis of the subsidy allocation process can help us in understanding the nature of the subsidy allocation problem and its potential weaknesses.

This paper examines the microeconomic motivation of governments to provide tax incentives for foreign direct investment. Author applies the classical models of oligopoly to subsidy competition, endogenousing investment incentives, but leaving tax rates exogenous. According to the conventional wisdom, subsidy competition leads to overprovision of incentives. This paper suggests that, in the oligopolistic framework, supranational coordination can either decrease or increase the supply of subsidies. Further, in the setting of subsidy regulation, the host country's corporate income tax rate has an ambiguous effect on the provision of incentives.