Coalition formation and political decision making: Evidence from Finnish municipal mergers
AbstractThis paper analyzes empirically the coalition formation of local governments. We introduce a novel econometric strategy involving choice based sampling from a spatial network to allow for multi-partner mergers in our empirical analysis. We apply our method to recent municipality mergers in Finland. The mergers were decided voluntarily by municipal councils but the central government promoted mergers through a subsidy scheme. Our main interest lies on the association of local politics with the merger decisions. Moreover, we are able to estimate the causal effect of the subsidy scheme on the merger decisions using a regression discontinuity design. We find that the local political environment is relevant for the merger decision making. The results are consistent with politicians? strategic behavior concerning private incentives on municipal employment possibilities and re-election. Furthermore, more concentrated political power at the local level seems to promote merging and different political parties hold different views concerning merging. The central government merger subsidy scheme has an effect on the type of mergers that took place. Overall, the results imply that local politics may hinder optimal coalition formation and that the central government may act as a corrective force by using an appropriate subsidy scheme.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 19.
Date of creation: 20 Dec 2010
Date of revision:
Find related papers by JEL classification:
- H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
- H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-CDM-2011-03-05 (Collective Decision-Making)
- NEP-POL-2011-03-05 (Positive Political Economics)
- NEP-URE-2011-03-05 (Urban & Real Estate Economics)
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