Do political parties matter? Endogenous fragmentation, partisanship, and local public expenditures in Finland

Both the Weak Government Hypothesis and the Partisan Theory state that institutional settings are sufficiently permissive to allow elected politicians to maximize their own utility at the expense of citizens’ preferences. We test this statement using data on Finnish local public expenditures. One important point is that the composition of the government can be explained by the hetero-geneity of voters’ preferences, hence the need for appropriate techniques to control for a potential selection bias. Using propensity score matching (PSM) methods, we demonstrate that neither the Weak Government Hypothesis nor the Partisan Theory provide an explanation of public spending differences. What appears to be the influence of government composition is in fact shown to be a demand driven process.