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Do Single-Party and Coalition Governments Differ in their Economic Outcomes? Evidence from Finnish Municipalities

  • Meriläinen
  • Jaakko
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    Even though Finland has proportional elections, single-party control in Finnish local councils is not uncommon contrary to what one might expect. The largest party holds more than half of the seats in every third Finnish local council and is thus likely to govern alone. This study investigates whether single-party and coalition governed municipalities differ in their economic outcomes. Common pool models predict that when there is a governing coalition, all the parties aim to target some spending at their core constituents, while costs are shared equally across all parties. This would mean that coalition governments result in higher spending. Using data from 445 Finnish municipalities for the years 1980?2010, I provide causal evidence that is consistent with the predictions of common pool models. Estimates suggest that single-party control decreases total expenditures and revenues by around 200?300 euros per capita. I also analyze the effect in several areas of spending and revenues, but do not find any clear results. I exploit close elections as a source of exogenous variation using a regression discontinuity design (RDD) approach tailored for proportional elections.

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    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 51.

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    Date of creation: 07 Oct 2013
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    Handle: RePEc:fer:wpaper:51
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    1. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
    2. Guido Imbens & Karthik Kalyanaraman, 2009. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," NBER Working Papers 14726, National Bureau of Economic Research, Inc.
    3. Torsten Persson & Gerard Roland & Guido Tabellini, 2006. "Electoral Rules and Government Spending in Parliamentary Democracies," Levine's Working Paper Archive 321307000000000249, David K. Levine.
    4. Olle Folke, 2010. "Shades of brown and green: Party effects in proportional election systems," Working Papers 2010/25, Institut d'Economia de Barcelona (IEB).
    5. Andrew Leigh, 2007. "Estimating the Impact of Gubernatorial Partisanship on Policy Settings and Economic Outcomes: A Regression Discontinuity Approach," CEPR Discussion Papers 556, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    6. Antti Moisio, 2002. "Determinants of Expenditure Variation in Finnish Municipalities," Discussion Papers 269, Government Institute for Economic Research Finland (VATT).
    7. Timothy J. Feddersen & Wolfgang Pesendorfer, 1995. "The Swing Voter's Curse," Discussion Papers 1064, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    9. Khemani, Stuti & Wane, Waly, 2008. "Populist fiscal policy," Policy Research Working Paper Series 4762, The World Bank.
    10. Fernando Ferreira & Joseph Gyourko, 2009. "Do Political Parties Matter? Evidence from U.S. Cities-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 399-422, February.
    11. Liang, Che-Yuan, 2007. "Is There an Incumbency Advantage or a Cost of Ruling in Proportional Election Systems?," Working Paper Series 2007:28, Uppsala University, Department of Economics.
    12. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    13. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1037-1056, 09.
    14. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
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