Testing yardstick competition through a vote-function: evidence from the Walloon municipalities

This paper aims at testing yardstick competition among the local jurisdictions of the Walloon Region (Southern part of Belgium) by directly testing its seminal hypothesis: yardstick voting. Actually the theory states that local incumbents are mimicking each other because they fear punishment for implementing higher tax rates than in neighbouring jurisdictions. Our research question is whether voters punish their incumbents for higher tax rates. We estimate different specifications of a vote function. None of them supports the yardstick voting hypothesis. One can thus exclude yardstick voting being statistically supported by taxpayers’ behaviour. And we can exclude yardstick competition as a source of tax interactions in the region if yardstick voting is a testable hypothesis of yardstick competition. Indeed, if tax rates of the neighbouring jurisdictions do not influence voters’ choices, incumbents do not have to fear an electoral punishment and then mimicking each other is meaningless.