Do Single-Party and Coalition Governments Differ in their Economic Outcomes? Evidence from Finnish Municipalities

Jaakko Meriläinen

No 51, Working Papers from VATT Institute for Economic Research

Abstract: Even though Finland has proportional elections, single-party control in Finnish local councils is not uncommon contrary to what one might expect. The largest party holds more than half of the seats in every third Finnish local council and is thus likely to govern alone. This study investigates whether single-party and coalition governed municipalities differ in their economic outcomes. Common pool models predict that when there is a governing coalition, all the parties aim to target some spending at their core constituents, while costs are shared equally across all parties. This would mean that coalition governments result in higher spending. Using data from 445 Finnish municipalities for the years 1980–2010, I provide causal evidence that is consistent with the predictions of common pool models. Estimates suggest that single-party control decreases total expenditures and revenues by around 200–300 euros per capita. I also analyze the effect in several areas of spending and revenues, but do not find any clear results. I exploit close elections as a source of exogenous variation using a regression discontinuity design (RDD) approach tailored for proportional elections.

Keywords: Single-party control; Coalition governments; Common pool problem; Municipal elections; Proportional system; Regression discontinuity design; Local public economics; Kunnallistalous; Effectiveness of public services; Julkisten palvelujen vaikuttavuus; H710 - State and Local Taxation; Subsidies; and Revenue; H720 - State and Local Budget and Expenditures; R500 - Regional Government Analysis: General (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cdm, nep-pol and nep-pub
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https://www.doria.fi/handle/10024/148790

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