Work in Progress:
"Electoral Response to a Large Property Reassessments Reform"
Abstract: This study explores the electoral response to an important property tax reform that occurred in Portugal. It leverages the financial assistance program in 2011 as a quasi-natural experiment due to an exogenous and urgent wave of property reassessments. This reappraisal process was a responsibility of the central government and was extremely controversial, for it would imply a shock in tax liabilities. A continuous difference-in-differences approach based on the intensity of reform is used to quantify the impact on the subsequent parliamentary election outcomes. In addition, a triple difference approach is implemented exploring heterogeneities in the de facto and sizable impact of the reform - the change in the property tax base caused by the reassessments - to investigate whether in more harmed municipalities, on average, react differently to the shock.
Abstract: Tax capitalization theory predicts that a lower property tax payment leads to higher housing prices. The intuition is that if a property tax reduction is viewed by the buyers as a decrease in the cost of living, they will be willing to pay higher prices. However, empirical evidence is scarce as one needs to consider crucial endogeneity concerns when testing this hypothesis. We tackle these issues by exploiting a quasi-natural experiment: an unexpected reduction in the upper bound of the Portuguese property tax rate for urban real estate in 2008. We rely on a rich dataset on all mainland municipalities that includes demographic, economic, and political variables for 2005--2011 to implement a difference-in-differences approach. We find that municipalities forced to decrease the property tax rate experimented a 5 to 7% increment in mean real estate values vis-à-vis the comparison group. These findings support the hypothesis of property tax capitalization and hold both in a sample including all mainland municipalities and in a restricted version with more homogenous municipalities.
"Term Limits: A new political scene or business as usual?", with M. Lopes da Fonseca
Abstract: This study investigates empirically in detail the selection effects of the introduction of term limits. That is, whether term limits, by creating more rotation in power, lead to the entry and selection of better politicians. Empirical evidence is scarce mainly due to data limitations. Hence, our contribution is twofold: we construct an extensive and unique dataset on Portuguese mayors' personal characteristics and we take advantage of a recent reform introducing mayoral term limits in Portugal to identify its causal impact on political selection. Our identification strategy relies on a difference-in-differences approach estimating how these mayors' personal characteristics differ on average between municipalities with re-eligible and term-limited incumbents. The baseline results show that, after the reform, treated municipalities elected politicians older and with a past political career, on average. This might suggest that before the implementation of term limits, being a mayor in Portugal could be considered as a career path, which one would stat at a young age and with no previous political experience.
"Local Government Longevity and Fiscal Strategic Interaction: When to Care about your Neighbor’s Policy", with S. Peralta.
Abstract: This paper provides empirical evidence for the impact of political longevity on the degree of fiscal interaction, using local property tax setting for the 278 Portuguese mainland municipalities between 2003 and 2011. Our main hypothesis is that the incumbent's reputation varies with her seniority. With a sufficiently high stock of reputation, the importance of yardstick comparisons with neighbor municipalities decreases. Conversely, purely tax competitive motivations do not change with longevity. We test whether strategic fiscal interaction amongst local governments varies with seniority. We use a two and three--regime spatial Durbin model with fixed effects (Elhorst and Fr\'{e}ret, 2009), with the regimes defined on the basis of the mayor's political longevity. Our main result is that incumbents in their first period in office react more to their neighbors' tax setting than the ones in higher terms. This finding suggests that longevity increases reputation and, moreover, strategic interaction stems from yardstick competition.
"The Blame Game of Property Reassessments"
Abstract: We study voters' behavior facing a "blame game" between two layers of governance (central and local) and whether voters decide to punish either layer when their tax liability is increased. We take advantage of a natural experiment: the tax revolt occurred in Spain in 1990. The main trigger of the revolt was the introduction of the property reassessments due to the consequent increase of voters' tax liabilities. However, since the central government was responsible for the reassessments, the revolt was particularly targeted to this level of governance. This allowed local governments to increase revenues and the blame the central government for the increase in tax liabilities. We test the hypothesis that voters do not directly punish local politicians for the increase in their tax liabilities. However, they may indirectly punish the central government by not reelecting local politicians that are aligned with it. We provide empirical evidence for this hypothesis by implementing a triple difference analysis on the probability of reelection in the Spanish local elections before and after the revolt.