Exploiting the Fine Print: The Politics of Property Tax Components in Taiwan

• In Event: Determinants of State and Local Fiscal Policy

Abstract

This paper examines the influence of political and economic factors on local government tax-setting behaviors, highlighting differential adjustments across components of property tax systems. Previous research has focused extensively on political incentives affecting local fiscal decisions but rarely addressed how politicians strategically exploit variations in tax salience, timing, and taxpayer visibility within property taxes. Taiwan’s distinct property tax system, comprising separate House Tax and Land Value Tax components, provides an ideal context for analyzing such nuanced behaviors.
Utilizing administrative tax data from Taiwanese local governments between 2010 and 2021, this study applies fixed-effect panel regressions and spatial econometric models to investigate election competitiveness, mayoral tenure, party alignment, and spatial dependence in tax decisions. Findings reveal significant political manipulation heterogeneity across tax components. The more visible House Tax strongly responds to electoral competitiveness, mayoral tenure, and local economic conditions. Conversely, manipulation of the Land Value Tax is subtler, primarily influenced by partisan alignment and strategic land value assessments.
Spatial analysis demonstrates prominent yardstick competition among neighboring jurisdictions, especially in House Tax decisions, highlighting strategic fiscal interdependence. These results extend existing theories on political budget cycles and yardstick competition by emphasizing the necessity of differentiating among tax components. The paper contributes valuable insights for policy measures aimed at enhancing fiscal accountability and mitigating distortions caused by political incentives and inter-jurisdictional competition.

Author

• Chienhao Fu, Department of Public Finance, National Chengchi University