Do Parties Matter?: Estimating the Effect of Political Power in Multi-party Systems

Ronny Freier and Christian Odendahl

No 1205, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper estimates the effect of political power on tax policies in municipal councils under a proportional election system. The main challenge in estimating the causal effect of parties on policy is to isolate the effect of power from underlying voter preferences and the selection effect of parties. We use an instrumental variable approach where close elections provide the exogenous variation in our variable of interest: voting power. Using data from German municipalities in the state of Bavaria, our estimation results suggest that power does matter. Somewhat surprisingly, the center-left party SPD is found to lower all three locally controlled taxes, whereas The Greens increase both property taxes considerably. These results remain robust across a range of specifications. What is more, the effect of the SPD is confirmed by a simple regression discontinuity estimation of mayors in these local governments.

Keywords: local taxation; local election; municipality data instrumental variable approach (search for similar items in EconPapers)
JEL-codes: H10 H11 H77 (search for similar items in EconPapers)
Pages: 46 p.
Date: 2012
New Economics Papers: this item is included in nep-cdm and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.398005.de/dp1205.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1205

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().