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Do Electoral Rules Make Legislators Differently Responsive to Fiscal Transfers? Evidence from German Municipalities

  • Köthenbürger, Marko
  • Egger, Peter
  • Smart, Michael

The paper empirically analyzes whether electoral rules make legislators differently responsive to changes in fiscal incentives. Key to the analysis are two unique reforms in the German state of Lower Saxony which changed (i) the municipal charter by replacing the council-manager system (featuring appointed mayors) by a mayor-council system (with directly-elected mayors) and (ii) the fiscal incentives inherent to the equalization system. We find that municipalities with appointed mayors react less strongly to changes in fiscal incentives. The change in municipal tax rates is three times smaller compared with a system of direct mayoral elections. We point to the different electoral incentives of mayors in the two systems to explain the result.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79972.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79972
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  1. Alexander Whalley, 2010. "Elected Versus Appointed Policymakers: Evidence from City Treasurers," NBER Working Papers 15643, National Bureau of Economic Research, Inc.
  2. Albert Solé-Ollé & Pilar Sorribas-Navarro, 2006. "The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain," Working Papers 2006-09, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
  3. Michael Smart, 2007. "Raising taxes through equalization," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1188-1212, November.
  4. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," Economics Working Papers 0020, Institute for Advanced Study, School of Social Science.
  5. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
  6. James J. Heckman, 1977. "Dummy Endogenous Variables in a Simultaneous Equation System," NBER Working Papers 0177, National Bureau of Economic Research, Inc.
  7. Michael Smart, 1998. "Taxation and Deadweight Loss in a System of Intergovernmental Transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 189-206, February.
  8. Peter Egger & Marko Koethenbuerger & Michael Smart, 2007. "Do Fiscal Transfers Alleviate Business Tax Competition? Evidence from Germany," CESifo Working Paper Series 1955, CESifo Group Munich.
  9. Stephen Coate & Timothy Besley, 2000. "Elected versus Appointed Regulators: Theory and Evidence," NBER Working Papers 7579, National Bureau of Economic Research, Inc.
  10. Bev Dahlby & Neil Warren, 2003. "Fiscal Incentive Effects of the Australian Equalisation System," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 434-445, December.
  11. Reza Baqir, 2002. "Districting and Government Overspending," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1318-1354, December.
  12. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 481-503, May.
  13. Alessro Lizzeri & Nicola Persico, . "The Provision of Public Goods Under Alternative Electoral Incentives," Penn CARESS Working Papers b96440ba0bfa06ca550ac40aa, Penn Economics Department.
  14. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  15. Persson, T. & Tabellini, G., 1998. "The Size and Scope of Government: Comparative Politics with Rational Politicians," Papers 658, Stockholm - International Economic Studies.
  16. Johansson, Eva, 2003. "Intergovernmental grants as a tactical instrument: empirical evidence from Swedish municipalities," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 883-915, May.
  17. Stephen Coate & Brian Knight, 2011. "Government Form and Public Spending: Theory and Evidence from US Municipalities," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 82-112, August.
  18. Marko Köthenbürger, 2002. "Tax Competition and Fiscal Equalization," International Tax and Public Finance, Springer, vol. 9(4), pages 391-408, August.
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