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How do Electoral Systems Affect Fiscal Policy? Evidence from State and Local Governments, 1890 to 2005

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  • Patricia Funk
  • Christina Gathmann

Abstract

Using a new data set on Swiss state and local governments from 1890 to today, we analyze how the adoption of proportional representation affects fiscal policy. We show that proportional systems shift spending toward broad goods (e.g. education and welfare benefits) but decrease spending on targetable goods (e.g. roads and agricultural subsidies). Our evidence does not suggest that proportional representation increases the overall size of government. We provide new evidence on the mechanism behind these estimates. We show that proportional elections lead to better political representation of left-wing parties, which are associated with more spending. Furthermore, proportional elections lead to higher political fragmentation. However, since political fragmentation increases spending in a plurality system only, proportional elections reduce spending through its more moderate effects of fractionalized parliaments.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-02/cesifo1_wp2958.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2958.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2958

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Keywords: electoral system; public finance; political fragmentation; matching;

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References

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  1. Philippe Aghion & Alberto Alesina & Francesco Trebbi, 2002. "Endogenous Political Institutions," NBER Working Papers 9006, National Bureau of Economic Research, Inc.
  2. Alessandro Lizzeri & Nicola Persico, . ""The Provision of Public Goods Under Alternative Electoral Incentives''," CARESS Working Papres, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 98-08, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. Austen-Smith, David & Banks, Jeffrey., 1987. "Elections, Coalitions, and Legislative Outcomes," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 643, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Torsten Persson & Gerard Roland & Guido Tabellini, 2005. "Electoral Rules and Government Spending in Parliamentary Democracies," Levine's Working Paper Archive 784828000000000024, David K. Levine.
  5. Reza Baqir, 2002. "Districting and Government Overspending," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(6), pages 1318-1354, December.
  6. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods And Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1243-1284, November.
  7. Alessandro Lizzeri & Nicola Persico, 2005. "A Drawback Of Electoral Competition," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(6), pages 1318-1348, December.
  8. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(4), pages 642-64, August.
  9. Aidt, T.S. & Dutta, Jayasri & Loukoianova, Elena, 2006. "Democracy comes to Europe: Franchise extension and fiscal outcomes 1830-1938," European Economic Review, Elsevier, vol. 50(2), pages 249-283, February.
  10. Jose Tavares, 2000. "Does Right or Left Matter? Cabinets, Credibility and Fiscal Adjustments," Econometric Society World Congress 2000 Contributed Papers 1548, Econometric Society.
  11. Gagliarducci, Stefano & Nannicini, Tommaso & Naticchioni, Paolo, 2008. "Electoral Rules and Politicians’ Behavior: A Micro Test," IZA Discussion Papers 3348, Institute for the Study of Labor (IZA).
  12. David Austen-Smith, 2000. "Redistributing Income under Proportional Representation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(6), pages 1235-1269, December.
  13. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(5), pages 1037-1056, 09.
  14. Gilligan, Thomas W. & Matsusaka, John G., 2001. "Fiscal Policy, Legislature Size, and Political Parties: Evidence from State and Local Governments in the First Half of the 20th Century," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 57-82, March.
  15. Tim Besley & Ian Preston, 2006. "Electoral bias and policy choice: theory and evidence," IFS Working Papers, Institute for Fiscal Studies W06/03, Institute for Fiscal Studies.
  16. Ticchi, Davide & Vindigni, Andrea, 2003. "Endogenous Constitutions," Seminar Papers, Stockholm University, Institute for International Economic Studies 726, Stockholm University, Institute for International Economic Studies.
  17. Bradbury, John Charles & Crain, W. Mark, 2001. "Legislative organization and government spending: cross-country evidence," Journal of Public Economics, Elsevier, vol. 82(3), pages 309-325, December.
  18. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
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Cited by:
  1. Vincenzo Galasso & Tommaso Nannicini, 2013. "Men Vote in Mars, Women Vote in Venus: A Survey Experiment in the Field," CESifo Working Paper Series 4328, CESifo Group Munich.
  2. Raffaella SANTOLINI, 2013. "Electoral rules and public expenditure composition: Evidence from Italian regions," Working Papers 396, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  3. Migheli, Matteo & Ortona, Guido, 2009. "Majority, proportionality, governability and factions," POLIS Working Papers, Institute of Public Policy and Public Choice - POLIS 122, Institute of Public Policy and Public Choice - POLIS.
  4. Galasso, Vincenzo & Nunnari, Salvatore, 2010. "Electoral Incentives and Economic Policy across Political Regimes," CEPR Discussion Papers 7959, C.E.P.R. Discussion Papers.

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