Fiscal attractiveness of Portuguese municipalities

Abstract

The modeling of the municipalities’ tax burden is one of the most relevant issues, especially in terms of municipal competitiveness. It challenges the definition and delimitation of local authorities’ taxing powers. This study aims to analyze the level of taxation of Portuguese municipalities and how local policies contribute to the definition of a ranking of fiscally more competitive municipalities. The paper applies quantitative methods based on the fiscal information made available by municipalities. It has been determined that it is possible to classify municipalities as more or less competitive through their tax supply, mainly at the level of their ability to set tax rates. In 2021, compared to 2020, the most fiscally competitive municipalities were located in the Autonomous Region of the Azores (Corvo (95.128%); Vila do Pico (95.128%); Madalena (95.128%); Povoação (95.078%); Santa Cruz das Flores (95.072%); Angra do Heroísmo (95.044%); Nordeste (95.036%); Vila Franca do Campo (95.036%); Horta (95.017%); and Ponta Delgada (95.017%)). The study also verified the maintenance of fiscal competitiveness among the most fiscally attractive municipalities, despite having several types of fiscal attraction policy options at their disposal, always conditioned by national legislation. This means fiscal policy is an instrument of competition for attracting companies, people, and productive investment to local municipalities. The existence of an international dogma favorable to the increasing attribution of administrative and financial autonomy to local authorities mainly supports this phenomenon.