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Electoral Rules, Political Competition and Fiscal Expenditures: Regression Discontinuity Evidence from Brazilian Municipalities

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  • Chamon, Marcos

    ()
    (International Monetary Fund)

  • de Mello, João M. P.

    ()
    (Pontifical Catholic University of Rio de Janeiro (PUC-Rio))

  • Firpo, Sergio

    ()
    (Sao Paulo School of Economics)

Abstract

We exploit a discontinuity in Brazilian municipal election rules to investigate whether political competition has a causal impact on policy choices. In municipalities with less than 200,000 voters mayors are elected with a plurality of the vote. In municipalities with more than 200,000 voters a runoff election takes place among the top two candidates if neither achieves a majority of the votes. We show that the possibility of runoff increases political competition. We use the discontinuity as a source of exogenous variation to infer causality from political competition to fiscal policy. Our results suggest that political competition induces more investment and less current expenditures, particularly personnel expenditures. The impact of political competition is larger when incumbents can run for reelection, suggesting incentives matter insofar as incumbents can themselves remain in office.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4658.

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Length: 35 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4658

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Keywords: electoral systems; political competition; regression discontinuity; fiscal expenditures;

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  1. Davin Chor & Do Quoc-Anh & Filipe R Campante, 2008. "Instability and Incentives for Corruption," Macroeconomics Working Papers 22070, East Asian Bureau of Economic Research.
  2. Arianna Degan & Antonio Merlo, 2006. "A Structural Model of Turnout and Voting in Multiple Elections," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 07-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Feb 2007.
  3. Milligan, Kevin & Lemieux, Thomas, 2006. "Incentive Effects of Social Assistance: A Regression Discontinuity Approach," Analytical Studies Branch Research Paper Series, Statistics Canada, Analytical Studies Branch 2006280e, Statistics Canada, Analytical Studies Branch.
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  5. Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001. "Electoral System and Public Spending," IMF Working Papers, International Monetary Fund 01/22, International Monetary Fund.
  6. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 25-45, March.
  7. Timothy Besley & Torsten Persson & Daniel.M Sturm, 2005. "Political competition and economic performance: theory and evidence from the United States," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3770, London School of Economics and Political Science, LSE Library.
  8. Antonio Merlo, 2005. "Whither Political Economy? Theories, Facts and Issues," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 05-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2005.
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  11. Besley, Timothy & Case, Anne, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 769-98, August.
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  13. Gordon, Sanford C. & Huber, Gregory A., 2007. "The Effect of Electoral Competitiveness on Incumbent Behavior," International Quarterly Journal of Political Science, now publishers, now publishers, vol. 2(2), pages 107-138, May.
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  15. Claudio Ferraz & Frederico Finan, 2008. "Exposing Corrupt Politicians: The Effects of Brazil's Publicly Released Audits on Electoral Outcomes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 703-745, 05.
  16. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, Elsevier, vol. 142(2), pages 675-697, February.
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Cited by:
  1. Stefano Gagliarducci & Tommaso Nannicini, 2008. "Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 346, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Massimo Bordignon & Tommaso Nannicini & Guido Tabellini, 2009. "Moderating Political Extremism: Single Round vs Runoff Elections under Plurality Rule," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 348, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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