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The influence of political fragmentation on public enterprises: Evidence from German municipalities

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  • Boll, David
  • Sidki, Marcus

Abstract

This study investigates the influence of politically fragmented municipal councils on the investment behaviour of municipally owned public enterprises. We argue that common public choice theories can also be applied to public enterprises. For our observation period (2002–2014), we use a data set encompassing 8,685 municipally owned enterprises subject to commercial accounting located in 3,237 municipalities drawn from all 13 German federal area states. On average, our results point to a negative effect of fragmentation on investment per capita, supporting a war of attrition or veto player approach. Effects are heterogeneous among different sectors, possibly due to higher visibility to voters. Thus, veto players might actively try to block prestigious and publicly perceivable investment projects to hinder their opponents. Political budget cycles additionally influence this effect for some sectors. However, testing non-linearities reveal that the common-pool hypothesis cannot be completely ruled out.

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  • Boll, David & Sidki, Marcus, 2021. "The influence of political fragmentation on public enterprises: Evidence from German municipalities," European Journal of Political Economy, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:poleco:v:67:y:2021:i:c:s0176268020301208
    DOI: 10.1016/j.ejpoleco.2020.101972
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    More about this item

    Keywords

    Municipal enterprises; Investments; Political economy; Interest fragmentation;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H19 - Public Economics - - Structure and Scope of Government - - - Other
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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