Search results

Using data from a complete housing inventory in the 2011 German Census and historical war damages as a source of exogenous variation in local homeownership, we provide evidence that otherwise identical jurisdictions charge lower property taxes when the share of homeowners in their population is higher. The result is independent of local market conditions, suggesting tax salience as key mechanism. We find positive spatial dependence in tax multipliers, indicative of property tax mimicking.

This paper investigates whether and how strongly the share of homeowners in a community affects residential property taxation by local governments. Different from renters, homeowners bear the full property tax burden irrespective of local market conditions, and the tax is more salient to them. "Homeowner communities" may hence oppose high property taxes in order to protect their housing wealth. Using granular spatial data from a complete housing inventory in the 2011 German Census and historical war damages as a source of exogenous variation in local homeownership, we provide empirical evidence that otherwise identical jurisdictions charge significantly lower property taxes when the share of homeowners in their population is higher. This result is invariant to local market conditions, which suggests tax salience as the key mechanism behind this effect. We find positive spatial dependence in tax multipliers, indicative of property tax mimicking by local governments.

"Partisan theory and extant evidence from parties' ideal policies suggest firms to perform better under right- than under left-leaning governments. If investors anticipate these effects of different parties holding office, changes in expected government partisanship should produce distinct patterns of stock market performance, with prices reflecting the electoral prospects of the competing parties in the pre-election time. This is the first study which investigates such anticipated effects of expected government partisanship on stock market performance in Germany. In accordance with rational partisan models of government we assume that increasing public support for the left- (right) leaning party coalition should result in decreasing (increasing) stock market performance. We analyze the effect of expected government partisanship on small firms in the 2002 German federal election employing GARCH (1,1) and TARCH (1,1) volatility models. The empirical evidence shows that overall stock performance of small German firms was positively (negatively) linked with the probability of a right-leaning (left-leaning) coalition winning the election. Moreover, we find increasing electoral prospects of a right-leaning coalition to trigger volatility increases while electoral uncertainty has a volatility reducing effect. The findings carry implications for parties' future economic policies and show possibilities for further research." (author's abstract)

How does divided government affect the probability of economic policy change, and thus policy risk on financial markets? In contrast to the standard balancing model we argue that divided government, i.e., partisan conflict between the executive and the legislative branches, negatively affects the possibility of economic policy change. Using a simple spatial model we demonstrate that one should expect divided government to increase the probability of policy gridlock. Since divided government reduces the probability of economic policy change, financial markets can operate under lower policy risk in times of divided than in periods of unified government. For the empirical evaluation we exploit the fact that stock return volatility provides us with a measure of risk. If the gridlock argument does hold, stock return fluctuations should be lower under divided than under unified government. Our results confirm that divided government has a volatility reducing effect on the German stock market. This supports the view that divided government lowers policy risk.

How does divided government affect the probability of economic policy change, and thus policy risk on financial markets? In contrast to the standard balancing model we argue that divided government, i.e., partisan conflict between the executive and the legislative branches, negatively affects the possibility of economic policy change. Using a simple spatial model we demonstrate that one should expect divided government to increase the probability of policy gridlock. Since divided government reduces the probability of economic policy change, financial markets can operate under lower policy risk in times of divided than in periods of unified government. For the empirical evaluation we exploit the fact that stock return volatility provides us with a measure of risk. If the gridlock argument does hold, stock return fluctuations should be lower under divided than under unified government. Our results confirm that divided government has a volatility reducing effect on the German stock market. This supports the view that divided government lowers policy risk. (Swiss Political Science Review / FUB)