Do Parties Matter?: Estimating the Effect of Political Power in Multi-party Systems
AbstractThis paper estimates the effect of political power on tax policies in municipal councils under a proportional election system. The main challenge in estimating the causal effect of parties on policy is to isolate the effect of power from underlying voter preferences and the selection effect of parties. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. Using data from German municipalities in the state of Bavaria, our estimation results suggest that power does matter. Somewhat surprisingly, the center-left party SPD is found to lower all three locally controlled taxes, whereas The Greens increase both property taxes considerably. These results remain robust across a range of specifications. What is more, the effect of the SPD is confirmed by a simple regression discontinuity estimation of mayors in these local governments.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1205.
Length: 46 p.
Date of creation: 2012
Date of revision:
local taxation; local election; municipality data instrumental variable approach;
Find related papers by JEL classification:
- H10 - Public Economics - - Structure and Scope of Government - - - General
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-02 (All new papers)
- NEP-CDM-2012-05-02 (Collective Decision-Making)
- NEP-POL-2012-05-02 (Positive Political Economics)
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