The Shadows of History for Today’s Fiscal Outcomes: Evidence from Polish Municipalities

Abstract: The paper subscribes to the literature stream that attempts to answer the question regarding whether history matters. However, in the paper a more specific question is asked concerning whether history matters for fiscal outcomes. In the context of the Polish municipalities the answer is positive. To confirm it, this chapter exploits a natural experiment, which was provided by Poland’s partition. After Poland lost its independence in 1795, its territory was divided between three empires (Prussia, Russia, and Austria-Hungary), was governed by foreign institutions, and was influenced by the culture and norms of these countries for more than 120 years. By means of spatial RD, it is shown that municipalities from the former Prussian empire impose contemporarily higher property tax rates as compared to municipalities that were exposed to the Russian ruling. Higher property tax rates lead to larger own revenue and higher fiscal autonomy. As a consequence of it, there is a smaller VFI in the municipalities belonging to the former Prussian partition than in the municipalities from the former Russian part. A discontinuity in the property tax rates is not observed at the Austria-Russia border. The paper offers potential explanations for the occurrence of the discontinuity at the Prussia-Russia border and the lack thereof at the Austria-Russia border.