Do parties matter? Estimating the effect of political power in multi-party systems

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1205

Classification and Topics

• Classification: Wirtschaft ; Structure and Scope of Government: General ; Structure, Scope, and Performance of Government ; Intergovernmental Relations; Federalism; Secession
• Subject: local taxation ; local election ; municipality data instrumental variable approach

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Freier, Ronny ; Odendahl, Christian
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/61414
• Last update: 10.03.2025, 11:46 AM CET