In the Grip of Whitehall? The Effects of Party Control on Local Fiscal Policy in England (with Francesco Porcelli and James Rockey), forthcoming, European Journal of Political Economy
This paper uses an instrumental variable approach based on close elections to evaluate the effects of political parties on local fiscal policy in England from 1998 to 2015. Our main finding is that when we condition on the central government grant, political control of the council by Labour or Conservative parties has no effect on total service expenditure, the composition of that expenditure, and the property tax rate (council tax per band D property). We find the same null results for capital expenditure, debt, and authorized debt limits. Using data on the distribution of income within local authorities, we find no evidence that this null result is being driven by homogeneous electorates rather than fiscal constraints. Thus, our results confirm the widely expressed belief that centrally imposed constraints on local government fiscal policy (rate-capping, and more recently, compulsory referenda, and the Prudential Code for borrowing) hold local government fiscal policy in a tight grip.
Tax and Occupancy of Business Properties: Theory and Evidence from UK Business Rates (with Martin Simmler and Eddy Tam), forthcoming, American Economic Journal: Policy
We study the impact of commercial property taxation on vacancy rates and rents in the UK, using a new data-set, and exploiting exogenous variations in property tax rates from reliefs in the UK system: small business rate relief (SBRR), retail relief and empty property relief. We estimate that the retail relief reduces vacancies by 85%, and SBRR relief by up to 49%, while empty property exemption increases them by up to 89%. The effect of retail relief on clusters of urban properties (the ``High St") is no different to its overall effect. SBRR increases (decreases) the likelihood that a property is occupied by a small (large) business. We also use data on asking prices for rental properties to study the effect of reliefs on rental rates. Rental rates move in the opposite direction to vacancy rates, except in the case of empty property relief. All these findings are consistent with a novel model of directed search in the commercial property market, also presented in the paper.
Dynamic Electoral Competition with Voter Loss-Aversion and Imperfect Recall (With Minh Le and James Rockey), Journal of Public Economics, 232 (2024), 105072.
This paper explores the implications of voter loss-aversion and imperfect recall for the dynamics of electoral competition in a simple Downsian model of repeated elections. The interplay between the median voter's reference point and political parties' choice of platforms generates a dynamic process of (de)polarization, following an initial shift in party ideology. This is consistent with the gradual nature of long-term trends in polarization in the US Congress.
How do right-wing populist parties influence climate and renewable energy policies? Evidence from OECD countries (with Matthew Lockwood), Global Environmental Politics 22.3 (2022): 12-37.
There is increasing evidence that right-wing populist parties (RWPPs) and their supporters are hostile to climate and low-carbon energy policies. In this article, we provide a quantitative analysis of the effects of RWPP representation in the legislature and executive on climate and renewable energy policy for a number of countries in the Organisation for Economic Co-operation and Development over the period 2007–2018. After controlling for other political, economic, and environmental factors, we find evidence for a significant and large negative effect of RWPPs in power on climate policy. Importantly, we also show that these negative effects vary with the proportionality of the electoral system and European Union membership. Both of these factors significantly moderate the negative influence of RWPPs. In countries with majoritarian electoral systems, the effects of RWPPs on climate policy work through both indirect legislative and direct executive routes. In contrast to climate policy, there is no overall significant relationship with renewable policy.
VAT Notches: Voluntary Registration, and Bunching: Theory and UK Evidence (with Li Liu, Miguel Almunia, and Eddy Tam), Review of Economics and Statistics 103, 151-164, 2021
Using administrative tax records for U.K. businesses, we document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. We develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition, and a lower share of business to consumer sales lead to voluntary registration. The predictions are exactly the opposite for bunching. We test the theory using linked VAT and corporation tax records from 2004 to 2014, finding empirical support for these predictions.
More Giving or More Givers? The Effects of Tax Incentives on Charitable Donations in the UK (with Miguel Almunia and Kim Scharf), Journal of Public Economics 183, 104-114, 2020
This paper estimates the effects of tax incentives on charitable contributions in the UK, using the universe of self-assessment income tax returns between 2005 and 2013. We exploit variation from a large reform in 2010 to estimate intensive- and extensive-margin tax-price elasticities of giving. Using a predicted-tax-rate instrument for the price of giving relative to consumption, we find an intensive-margin elasticity of about − 0.2 and an extensive-margin elasticity of − 0.1, yielding a total elasticity of about − 0.3. To further explore the extensive-margin response, we propose a model with a fixed cost of declaring donations and obtain a structural estimate of that cost of around £47. We also study the welfare effects of tax incentives, extending the theoretical literature to allow for extensive-margin giving and for a fixed cost of declaring donations. Taking into account these factors, there is a case for increasing the subsidy on charitable giving in the UK.
Negative Voters? Electoral Competition with Loss-Aversion (with James Rockey), Economic Journal 632, 2619-2648, 2020
This paper studies the effect of voter loss aversion in preferences over both candidate policy platforms and candidate valence on electoral competition. Loss-aversion over platforms leads to both platform rigidity and reduced platform polarisation, whereas loss-aversion over valence results in increased polarisation and the possibility of asymmetric equilibria with a self-fulfilling (dis)-advantage for the incumbent. The results are robust to a stochastic link between platforms and outcomes; they hold approximately for a small amount of noise. A testable implication of loss-aversion over platforms is that incumbents adjust less than challengers to shifts in voter preferences. We find some empirical support for this using data for elections to the US House of Representatives.