Bracco, Emanuele Porcelli, Francesco Redoano, Michela
Year of Publication:
CESifo Working Paper: Public Finance 4061
This paper provides a simple model to explain effect of political alignment between different tiers of government on policy choices and election outcomes. We derive precise predictions that, as long as voters attribute most of the credit for providing public goods to the local government: (i) aligned municipalities receive more grants, set lower taxes and provide more public goods, (ii) the probability that the local incumbent is re-elected is higher in aligned municipalities compared to not aligned ones. Our empirical strategy to identify the alignment effects is built upon the fact that being or not aligned changes discontinuously at 50% of the vote share of local parties. This allows us to use sharp regression discontinuity design. Our theoretical predictions are largely confirmed using a new dataset on Italian public finance and electoral data at the central and local level.
fiscal federalism political competition accountability