Tax decentralization, preferences for redistribution and regional identities

Abstract

This paper provides novel evidence on the impact of tax decentralization on citizens’ preferences for redistribution. The study leverages results from a large-scale survey experiment implemented in Spain. The experimental design is based on an information treatment which explains the normative power of regional governments in personal income taxation, a feature mostly unknown at baseline. First-stage results show that the treatment increases the salience of this characteristic by 40 percentage points. The treatment increases respondents’ aversion against inequality but decreases their suport for higher taxes on the rich. Both results are explained by the identities of respondents. The effect on inequality is driven by individuals with a stronger regional than national identity, while the rejection of higher taxes on the richis driven by participants which identify more with the nation than the region. Heterogeneous effects on trust in central or regional governments confirm this pattern. These results shed light on the role of identity in shaping preferences for redistribution and provide novel evidence that redistributive policies work as a local public good when local attachment of citizens is large.