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Do Parties Matter?: Estimating the Effect of Political Power in Multi-party Systems

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  • Ronny Freier
  • Christian Odendahl

Abstract

This paper estimates the effect of political power on tax policies in municipal councils under a proportional election system. The main challenge in estimating the causal effect of parties on policy is to isolate the effect of power from underlying voter preferences and the selection effect of parties. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. Using data from German municipalities in the state of Bavaria, our estimation results suggest that power does matter. 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. What is more, the effect of the SPD is confirmed by a simple regression discontinuity estimation of mayors in these local governments.

Suggested Citation

  • Ronny Freier & Christian Odendahl, 2012. "Do Parties Matter?: Estimating the Effect of Political Power in Multi-party Systems," Discussion Papers of DIW Berlin 1205, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1205
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    References listed on IDEAS

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    Cited by:

    1. Fiva, Jon H. & Halse, Askill H., 2016. "Local favoritism in at-large proportional representation systems," Journal of Public Economics, Elsevier, vol. 143(C), pages 15-26.
    2. Ade, Florian & Freier, Ronny & Odendahl, Christian, 2014. "Incumbency effects in government and opposition: Evidence from Germany," European Journal of Political Economy, Elsevier, vol. 36(C), pages 117-134.
    3. Kaisa Kotakorpi & Panu Poutvaara & Marko Tervio, 2013. "Returns to office in national and local politics," Discussion Papers 86, Aboa Centre for Economics.
    4. Björn Kauder & Niklas Potrafke, 2013. "Government Ideology and Tuition Fee Policy: Evidence from the German States," CESifo Economic Studies, CESifo Group, vol. 59(4), pages 628-649, December.
    5. Felix Arnold, 2015. "Turnout and Closeness: Evidence from 60 Years of Bavarian Mayoral Elections," Discussion Papers of DIW Berlin 1462, DIW Berlin, German Institute for Economic Research.
    6. Thushyanthan Baskaran & Zohal Hessami, 2017. "Political alignment and intergovernmental transfers in parliamentary systems: evidence from Germany," Public Choice, Springer, vol. 171(1), pages 75-98, April.
    7. Felix Arnold & Ronny Freier, 2015. "The Partisan Effects of Voter Turnout: How Conservatives Profit from Rainy Election Days," Discussion Papers of DIW Berlin 1463, DIW Berlin, German Institute for Economic Research.
    8. Benoît LE MAUX & Kristýna DOSTÁLOVÁ & Antti MOISIO, 2017. "Do political parties matter? Endogenous fragmentation, partisanship, and local public expenditures in Finland," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2017-02-ccr, Condorcet Center for political Economy.
    9. Jekaterina Kuliomina, 2016. "Does Election of an Additional Female Councilor Increase Women's Candidacy in the Future?," CERGE-EI Working Papers wp559, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    10. Jekaterina Kuliomina, 2018. "Does Election of an Additional Female Councilor Increase Women's Candidacy in the Future?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(1), pages 37-81, June.
    11. Benoît LE MAUX & Kristýna DOSTÁLOVÁ & Fabio PADOVANO, 2017. "Ideology and Public Policies: A Quasi-Experimental Test of the Hypothesis that Left-Wing Governments Spend More," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2017-01-ccr, Condorcet Center for political Economy.
    12. Lind, Jo Thori, 2020. "Rainy day politics. An instrumental variables approach to the effect of parties on political outcomes," European Journal of Political Economy, Elsevier, vol. 61(C).
    13. Freier, Ronny, 2015. "The mayor's advantage: Causal evidence on incumbency effects in German mayoral elections," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 16-30.
    14. Hyytinen, Ari & Saarimaa, Tuukka & Tukiainen, Janne, 2014. "Electoral vulnerability and size of local governments: Evidence from voting on municipal mergers," Journal of Public Economics, Elsevier, vol. 120(C), pages 193-204.
    15. Fowler, Anthony & Hall, Andrew B., 2015. "Congressional seniority and pork: A pig fat myth?," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 42-56.

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    More about this item

    Keywords

    local taxation; local election; municipality data instrumental variable approach;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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