Local Choice of Property Taxation: Evidence from Norway

Fiscal competition may influence the design of tax systems. The tax competition literature has concentrated on mobility of tax base and tax levels, while we turn the attention to the political decision-making system and the determination of tax structure. In the Norwegian setting local governments make a discrete choice whether to have property tax. The local choice is investigated in an econometric model allowing for yardstick competition. Our results indicate that yardstick competition explains the distinct geographic pattern in local property taxation observed. Grants have no effect on the propensity to have property taxation, consistent with the flypaper effect. The main methodological challenge handled concerns spatial interaction with discrete choice.