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Who seeks reelection: local fiscal restraints and political selection

Author

Listed:
  • Susana Peralta

    (Universidade NOVA de Lisboa)

  • João Pereira dos Santos

    (Universidade NOVA de Lisboa)

Abstract

This paper analyzes the consequences of local fiscal autonomy with respect to political selection. We propose a model of political careers wherein the decisions to become candidates and to seek reelection are both endogenous. Private-sector aptitude and political ability are private information; the latter is revealed to the incumbent during her first period in office. We show that, following an unanticipated reduction in the returns from holding office, incumbents with high market ability are more likely to refrain from running for office again than their lower-ability counterparts. We test that prediction using an unexpected reduction in the upper bound of the municipal property tax rate, announced by Portugal’s prime minister in July 2008, just 15 months before the local elections. We rely on a comprehensive data set for all Portuguese mainland municipalities for the 2005 and 2009 elections, including the characteristics of the municipalities and individual mayors. We employ a difference-in-differences strategy to show that affected mayors—those who were forced to reduce the property tax rate, and thus faced a sharp tax revenue decline—are less likely to seek reelection. This effect is driven by high-professional-status incumbents.

Suggested Citation

  • Susana Peralta & João Pereira dos Santos, 2020. "Who seeks reelection: local fiscal restraints and political selection," Public Choice, Springer, vol. 184(1), pages 105-134, July.
  • Handle: RePEc:kap:pubcho:v:184:y:2020:i:1:d:10.1007_s11127-019-00702-7
    DOI: 10.1007/s11127-019-00702-7
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    Cited by:

    1. Miguel Ferreira & João Pereira dos Santos & Ana Venâncio, 2019. "Collateral Value and Entrepreneurship: Evidence from a Property Tax Reform," GEE Papers 0137, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2019.

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    More about this item

    Keywords

    Political selection; Fiscal autonomy; Local governments;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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