Fiscal Rules and the selection of politicians: theory and evidence from Italy

75 Pages Posted: 14 Sep 2017 Last revised: 1 Jun 2021

See all articles by Matteo Gamalerio

Matteo Gamalerio

University of Barcelona - Institut d'Economia de Barcelona (IEB)

Federico Trombetta

DISEIS, Faculty of Political and Social Sciences, Universita' Cattolica del Sacro Cuore

Date Written: May 30, 2021

Abstract

Fiscal rules, i.e., constraints to the policymaking discretion of elected officials in terms of deficit and expenditures, are widely used tools to regulate fiscal policies. This paper shows that they can negatively affect the quality of candidates willing to run for office. We build a simple model that combines fiscal rules with endogenous entry into politics. The model shows that fiscal rules negatively affect the share of high education politicians willing to run for office when the share of politicians biased in favor of public spending is sufficiently low. We test the predictions of the model using data from Italian municipalities and a difference-in-discontinuity design. Consistent with
the model, the empirical analysis shows that fiscal rules negatively affect politicians’ education and that municipalities where our proxy for politicians’ pro-spending bias is low drive the results. These results highlight a new "general equilibrium" effect of fiscal rules. Reducing policymaking discretion may alleviate inter-jurisdictional externalities and pork-barrel spending. However, it may also lower the political class’s quality.

Keywords: fiscal rules, selection of politicians, deficit, difference-in-discontinuity

JEL Classification: D72, H62, H70, H72

Suggested Citation

Gamalerio, Matteo and Trombetta, Federico, Fiscal Rules and the selection of politicians: theory and evidence from Italy (May 30, 2021). Available at SSRN: https://ssrn.com/abstract=3035437 or http://dx.doi.org/10.2139/ssrn.3035437

Matteo Gamalerio (Contact Author)

University of Barcelona - Institut d'Economia de Barcelona (IEB) ( email )

c/ Tinent Coronel Valenzuela, 1-11
Barcelona, 08034
Spain

Federico Trombetta

DISEIS, Faculty of Political and Social Sciences, Universita' Cattolica del Sacro Cuore ( email )

Largo Gemelli
1
Milano, Milano 20123
Italy

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