The causal effect of coalition governments on fiscal policies: evidence from a Regression Kink Design

Sebastian Garmann

Applied Economics, 2014, vol. 46, issue 36, 4490-4507

Abstract: Proportional election systems are widespread across countries and often lead to coalition governments. This creates interest in how the form of government (single-party or coalition governments) causally influences fiscal policies. It is difficult to estimate this causal effect empirically because the form of government is not randomly assigned to political units. I overcome this problem by using a Regression Kink Design which exploits that there is a slope change in the treatment probability at the 50% vote share of the strongest party. This method is applied to a large panel data set of German local governments. I find that contrary to the theoretical prediction, coalition governments significantly decrease expenditures.

Date: 2014
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DOI: 10.1080/00036846.2014.964831

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