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

66 Pages Posted: 14 Sep 2017 Last revised: 20 Dec 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

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2021

Abstract

Fiscal rules, i.e., constraints to the policymaking discretion of elected officials, are widely used tools to regulate fiscal policies. We build a simple model that combines fiscal rules with endogenous entry into politics, showing how fiscal rules can negatively affect the quality (in terms of education) of candidates running for office. The mechanism behind this effect is due to the differential ability in choosing the correct policy between high and low education politicians and the fact that fiscal rules constraint politicians’ actions, creating a relatively higher entry cost for high education politicians. Consistent with the model, the empirical analysis developed with data from Italian municipalities and a difference-in-discontinuity design shows that fiscal rules negatively affect candidates’ education. We also show that municipalities where fiscal rules meaningfully restrict the action space of politicians (i.e., those not ex-ante financially constrained) drive the effect. In addition, we provide evidence that high education politicians are more likely to choose the correct policy when fiscal rules do not apply. 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 quality of the political class.

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 (December 19, 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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