Local Government Fiscal Policies: Left-Wing vs. Right-Wing Portuguese Municipalities

Abstract

In this paper, I investigate whether the ideology of the local government incumbent influences local fiscal policies by using financial data from Portuguese municipalities, from 2003 to 2007. Regression discontinuity design is employed to ensure proper identification of the ideology effect on fiscal policies. Left-wing control of municipal presidency showed a significant effect on the likelihood of adopting a municipal corporate tax. Also, left-wing municipalities were more likely to invest in social infrastructure. On the other hand, right-wing municipalities were more likely to grant subsidies to families, as well as to offer more generous compensation to their municipal workers. Finally, left-wing municipalities were less likely to resort to high levels of debt than their right-wing counterparts.

Keywords: Fiscal Priorities, Ideology, Regression Discontinuity Design

JEL Classification: H71, H72, D72