Can Higher Tax Autonomy Enhance Local Fiscal Discipline? Evidence from Tax Decentralization in Poland

This article explores the impact of local tax autonomy on local fiscal discipline with data for more than 2,400 Polish municipalities, over the period 2002-2014. The novelty of this study is that we rely on a measure of "de jure'' fiscal decentralization, given by the share of own taxes that the local authorities are entitled to collect, before any local tax policies have been implemented. This allows us to verify the systemic impact of local tax autonomy on fiscal balances, which is not affected by local policy choices that can simultaneously change budgetary outcomes. Our results uniformly show that fiscal autonomy is associated with higher fiscal prudence.