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How Do Electoral Systems Affect Fiscal Policy? Evidence from State and Local Governments, 1890 to 2005

50 Pages Posted: 28 Feb 2010  

Patricia Funk

University of Lugano

Christina Gathmann

Alfred-Weber Institut; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2010

Abstract

Using a new data set on Swiss state and local governments from 1890 to today, we analyze how the adoption of proportional representation affects fiscal policy. We show that proportional systems shift spending toward broad goods (e.g. education and welfare benefits) but decrease spending on targetable goods (e.g. roads and agricultural subsidies). Our evidence does not suggest that proportional representation increases the overall size of government. We provide new evidence on the mechanism behind these estimates. We show that proportional elections lead to better political representation of left-wing parties, which are associated with more spending. Furthermore, proportional elections lead to higher political fragmentation. However, since political fragmentation increases spending in a plurality system only, proportional elections reduce spending through its more moderate effects of fractionalized parliaments.

Keywords: electoral system, public finance, political fragmentation, matching

JEL Classification: H00, H10, H40, H52, H53, H72, N83, N84

Suggested Citation

Funk, Patricia and Gathmann, Christina, How Do Electoral Systems Affect Fiscal Policy? Evidence from State and Local Governments, 1890 to 2005 (February 2010). CESifo Working Paper Series No. 2958. Available at SSRN: https://ssrn.com/abstract=1559745

Patricia Funk

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Christina Gathmann (Contact Author)

Alfred-Weber Institut ( email )

Bergheimer Str. 20
Heidelberg, 69115
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/index_html?lang=en&mainframe=http%3A//www.iza.org/en/webcontent/personnel/photos%

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.stanford.edu/~cgathman

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