The causal effect of coalition governments on fiscal policies: evidence from a Regression Kink Design

Proportional election systems are widespread across countries and often lead to coalition governments. This creates interest in how the form of government (single-party or coalition governments) causally influences fiscal policies. It is difficult to estimate this causal effect empirically because the form of government is not randomly assigned to political units. I overcome this problem by using a Regression Kink Design which exploits that there is a slope change in the treatment probability at the 50% vote share of the strongest party. This method is applied to a large panel data set of German local governments. I find that contrary to the theoretical prediction, coalition governments significantly decrease expenditures.