Neighbour effect: applicability of tax mimicking concept to setting tariffs for water provision in Poland

Abstract

Abstract In our paper, tariff mimicking is interpreted as a specific type of yardstick competition. Local authorities compete for political capital and, in order to maintain (or increase) it, they compare their voter-sensitive policies with the policies of other local governments. The phenomenon of mimicking is related to the subject of inter-jurisdictional interactions. We try to identify the phenomenon of mimicking in local fees for water provision in Poland in the period 2013–2017. Our empirical strategy is based on two methods: spatial lag regression and a quasi-experimental design using a difference-indifferences method. In the latter method, we first identify local governments that have considerably increased their tariffs for water. Next, we compare whether their immediate neighbouring municipalities are more likely to follow the change than a ‘control group’ of similar, more distant, local governments. The results of our study confirm the existence of geographical interactions in the tariff policies of Polish local governments. Furthermore the results of our regression models confirm that ‘mimicking interactions’ are stronger in the case of tariffs for water provision than for local tax policies.