Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2003:15: Do Parties Matter for Fiscal Policy Choices? A Regression-Discontinuity Approach

Per Pettersson-Lidbom ()
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Per Pettersson-Lidbom: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: This paper presents a method for measuring the causal effect of party control on fiscal policy outcomes. The source of identifying information comes from an institutional feature of the election system, namely that party control changes discontinuously at 50 percent of the vote share, i.e., a party that receives more than 50 percent of the votes will be in office. The approach is applied to a very large panel data set from Swedish local governments, which offers a number of attractive features. The results show that there is large and significant party effect: on average, left-wing parties spend and tax 2.5 percent more than right-wing governments. The party effect constitutes 1 percent of average municipality income, clearly a sizeable effect.

Keywords: political parties; party control; regression-discontinuity design

JEL-codes: P16

33 pages, December 17, 2003

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