Tax expenditures in municipalities in Wielkopolskie voivodeship

Abstract

The aim of the article is to present the spatial differentiation of tax expenditures in municipalities of Wielkopolskie Voivodeship and to identify factors explaining this differentiation. Tax expenditures should be understood as the lost tax revenue related to the applied tax preferences. The study covered four local taxes, i.e. real estate tax, agricultural tax, forestry tax and vehicle tax, for which municipalities have limited tax authority. Panel models were used in the empirical analysis and the study covered 226 municipalities in Wielkopolskie Voivodeship in the period 2013–2022. The study showed that municipalities in Wielkopolskie Voivodeship apply tax preferences to a varying extent, which translates into varying amounts of lost tax revenue. Between 2013 and 2022, the amount of tax expenditures amounted to PLN 5.2 billion, which accounted for 5.6% of own income. During the period under review, the largest tax preferences were introduced in the municipality of Suchy Las (nearly PLN 190 million), while the smallest were introduced in the municipality of Luboń (PLN 9.5 million). Interestingly, both of these municipalities are adjacent to Poznań, but the former is a rural municipality and the latter an urban one. The most important factors explaining the variation in tax expenditures in the municipalities of Wielkopolskie Voivodeship were the tax policy pursued in neighbouring municipalities and wealth. Decisions to introduce tax preferences taken in a given unit are a response to what is happening in neighbouring units. The use of tax expenditures is thus driven by the desire to maintain and increase political capital, which is best explained by the concept of yardstick competition. Wealthy municipalities with a high level of own income try to engage in competition with neighbouring municipalities by means of applied tax preferences. The role of aspects such as population density and the electoral cycle in explaining the spatial variation of tax expenditures in the municipalities of Wielkopolskie Voivodeship was much smaller. Only in the case of agricultural, the size of the municipality mattered. The smaller the municipality, the higher the tax expenditures. This indicates that less anonymity and closer and more frequent contact between the government and residents lead to a wider use of tax preferences.