DO INTERGOVERNMENTAL EQUALIZATION GRANTS HAVE IMPACT ON TAX PREFERENCES IN URBAN-RURAL MUNICIPALITIES IN POLAND?

Among almost 2500 municipalities in Poland we can find over 610 which cover both town and rural areas. Taking into considerations their revenue sources we can notice that over two third of them is supported by equalization grants. The main objective of this paper is to find out how do they use their negative taxing powers to lower tax burden from local taxes while they receive equalization grants. It is important because equalization scheme in Poland should equalize revenues taking into consideration Base Tax Revenues of municipality (potential revenues to collect by the municipality omitting all introduced tax expenditures). All collected data come from local government annual reports Rb-PDP, Ministry of Finance announcements about equalization grants for local governments and Base Tax Revenue per capita indicator also announced by Ministry of Finance. Research cover 2012-2017 period. Basic methods of survey were descriptive statistics summary statistics as location, spread, shape and dependence (Pearson population correlation coefficient). The main findings of this analysis are as follow: firstly we can observe that in case of urban-rural municipalities revenue loss from tax expenditures of all kinds is between 10 and 50 % of possible revenues from Base Tax Revenues (local government taxes and tax shares in income taxes) but average loss was about 20%. Secondly we can notice that municipalities use mainly possibility to lower tax rates for all local taxpayers instead of discretional administrative decisions eg. about tax reliefs. It should be also noted that lowering tax rates mainly is visible in vehicle meanings tax (almost half of them reaches 70 to 100% loss of possible revenues) than in real estate tax. The third finding points out that there is Pearson population correlation coefficient (-0,37 for 2015 year) between level Base Tax Revenue per capita and coverage of tax expenditures by equalization grant (when tax base drops down coverage rises, when we remove outliers it changes to -0,60). In another words municipalities with poor tax base chose low tax rates because they are aware that equalization grant will cover their revenue loses.