What is it in simple terms?

Voters ask why their taxes are higher than next door's, so governments watch their neighbours.

How is it different from tax competition?

Tax competition chases mobile capital; yardstick competition follows voter comparisons.

Yardstick Competition

🏛️ Politics & Public Administration By CampusDown Wiki Editorial Team Last updated October 27, 2026 Views 6

Yardstick competition occurs when voters, unable to observe their own government's performance directly, use neighbouring governments as benchmarks, leading governments to track each other's tax rates and policies.

Contents

1. Origins
2. Elections and taxes
3. Versus tax competition
4. FAQ
5. References

Origins

Shleifer (1985) proposed benchmarking regulated firms; Salmon (1987) applied it to decentralised government.

Elections and taxes

Besley and Case (1995) showed voters punish governors who raise taxes above neighbours, adding a benchmark to retrospective voting; Bordignon and colleagues (2003) found it where elections are competitive.

Versus tax competition

Brueckner (2003) distinguished it from tax competition; unlike the Tiebout model it works through the ballot. Allers and Elhorst (2005) found Dutch evidence.

FAQ

What is it in simple terms?: Voters ask why their taxes are higher than next door's, so governments watch their neighbours.
How is it different from tax competition?: Tax competition chases mobile capital; yardstick competition follows voter comparisons.

Sources reviewed: 2026-10-26

References

Shleifer, A. (1985). A theory of yardstick competition. RAND Journal of Economics, 16(3), 319–327. The original regulatory formulation.
Salmon, P. (1987). Decentralisation as an incentive scheme. Oxford Review of Economic Policy, 3(2), 24–43. Applies the idea to decentralised government.
Besley, T., & Case, A. (1995). Incumbent behavior: Vote-seeking, tax-setting, and yardstick competition. American Economic Review, 85(1), 25–45. Key evidence that voters compare neighbouring tax rates.
Brueckner, J. K. (2003). Strategic interaction among governments: An overview of empirical studies. International Regional Science Review, 26(2), 175–188. Distinguishes yardstick from other interactions.
Bordignon, M., Cerniglia, F., & Revelli, F. (2003). In search of yardstick competition: A spatial analysis of Italian municipality property tax setting. Journal of Urban Economics, 54(2), 199–217. Shows the effect depends on electoral competition.
Allers, M. A., & Elhorst, J. P. (2005). Tax mimicking and yardstick competition among local governments in the Netherlands. International Tax and Public Finance, 12(4), 493–513. Dutch evidence.
Oates, W. E. (1972). Fiscal federalism. Harcourt Brace Jovanovich. The classic on fiscal federalism.

Reports and materials that use this theory (Korean)

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Tax CompetitionWhat tax competition is: governments cutting taxes to attract mobile capital and firms. Zodrow–Mieszkowski and Wilson models, underprovision versus taming Leviathan, and evidence on corporate tax competition.📈 Economics Fiscal FederalismWhat fiscal federalism is: how revenue and spending functions should be divided between central and local governments. Covers the decentralization theorem and first- and second-generation theories.📈 Economics Tiebout ModelWhat the Tiebout model is: residents sort into communities offering their preferred mix of taxes and services, so local public goods can be supplied efficiently, with assumptions, evidence, sorting and fiscal federalism.📈 Economics Retrospective VotingWhat retrospective voting is: voters reward or punish incumbents based on past performance. Covers Key and Fiorina, electoral control models, irrelevant events, recency bias, blind retrospection and the debate over voter competence.🏛️ Politics & Public Administration

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This article was last updated on October 27, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.