We analyze the relation between (horizontal) fairness in the local property tax and municipal tax policy in the 308 Flemish municipalities in 2012. The local property tax is levied on the property’s assessed rental value, and its unfairness is a by-product of the slow reassessment procedure – such that properties of identical value are being taxed (very) differently. Using data for housing sales, we create an indicator for the unfairness of the local property tax. We find clear evidence that this unfairness affects political decision-making: municipalities in which property taxation is more unfair tend to rely systematically less on this tax as a source of municipal revenue. Instead these local governments tend to generate revenue through local income taxation.

A significant international literature has shown that political fragmentation the existence of multiple parties in a governing body - affects policy-making. Indeed, an increase in the number of parties increases the number of viewpoints considered, but on the other hand may also lead to a decrease in government flexibility. This paper first of all shows that Flemish municipalities often have fragmented governments as measured by the number of parties represented in the municipal council and the College of Mayor and Alderman. We also show that this fragmentation at the local level affects policy-making, though not necessarily in the same directions found in the international literature.