Politicians’ Incentives and the Congested Budget Effect: Evidence from Italian Municipalities

Luca Bellodi and Massimo Morelli

No 23194, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: Once in office, politicians propose policies and programmes aimed at winning the support of their constituencies. While this form of political activism increases with the number of politicians in government, it can also clash with capacity constraints, leading to a congestion effect whereby politicians’ plans are not enacted in practice. With novel data on Italian municipalities, we estimate the effect of the number of politicians on a battery of planned and actual budget outcomes. We leverage a reform that introduced a new temporary population threshold where the size of government bodies changed discontinuously and estimate treatment effects with a difference-in-discontinuities design. We find that more politicians plan to spend more but they do not do so in practice. The degree of this congestion decreases when bureaucratic capacity is high (i.e., larger share of bureaucrats with a university degree), suggesting administrative capacity deficits prevent politicians from implementing their proposed agenda.

Pages: 41
Date: 2023
New Economics Papers: this item is included in nep-eur, nep-pol and nep-ure
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