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Do parties matter? Estimating the effect of political power in multi-party systems
Stockholm University, Faculty of Social Sciences, Department of Economics.
Number of Authors: 2
2015 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 80, 310-328 p.Article in journal (Refereed) Published
Abstract [en]

When there are more than two parties, policy outcomes are typically the result of a bargaining process. We investigate whether changes in political power for various parties have an effect on tax policies. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. In order to isolate close elections in a proportional election system, we develop a new simulation algorithm. Using data from German municipalities in the state of Bavaria, our estimation results suggest that political power does matter for policies. Somewhat surprisingly, the center-left party SPD is found to lower all three locally controlled taxes, whereas The Greens increase both property taxes considerably. These results remain robust across a range of specifications. Our partisan effect for the SPD is also confirmed by a simple regression discontinuity estimation using mayoral elections.

Place, publisher, year, edition, pages
2015. Vol. 80, 310-328 p.
Keyword [en]
Local taxation, Local election, Municipality data, Instrumental variable approach
National Category
Economics and Business
URN: urn:nbn:se:su:diva-125809DOI: 10.1016/j.euroecorev.2015.09.011ISI: 000366869800016OAI: diva2:944947
Available from: 2016-06-30 Created: 2016-01-18 Last updated: 2016-06-30Bibliographically approved

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