MUNICIPAL TAX ABATEMENT IN A CENTRALIZED TRANSITION STATE

Since Lithuania instituted its currency board, monetary policy has been eliminated as a tool for demand side management. The national government can attempt to steer its taxation and spending decisions within a macroeconomic framework, but also has to account for the independent fiscal decisionmaking of local governments. This problem has been minimized by the high degree of centralization, eliminating any role for local governments in deciding on forms of taxation or tax rates. The one area that Lithuanian municipalities can adjust is the amount of tax abatement in the jurisdiction. This paper seeks to investigate the determinants of the level of municipal tax abatements, as the one part of fiscal policy that is outside the direct control of the national government and as such may offset or reinforce national fiscal policy.