Browsing by Subject "kunnallistalous"

The largest party holds more than half of the seats in every third Finnish local council and, thus, is likely to govern alone. It is namely the absolute majority that makes the decisions. In this study, I investigate, if single-party and coalition governed municipalities differ in economic outcomes. Theoretical considerations often rely on so-called common pool problem. Common pool models suggest that when there is a governing coalition, all parties want to target some spending to their core constituents, while costs are shared equally across all parties. This results in higher spending than in the case that one party would be governing. However, also contradictory arguments have been proposed. It has been suggested that, for instance, strategic use of debt or role of swing voters in elections could lead to higher spending under single-party government. In this study, I show evidence from Finnish municipalities that is consistent with the idea of common pool models. Following the recent development lines in empirical political economics, I exploit close elections as a source of exogenous variation using regression discontinuity design (RDD) adjusted to proportional system. It is assumed that close elections are as good as if they were random. Estimates suggest that single-party control decreases, on average, total expenditures and revenues by around 200 euros per capita. However, it seems that the effect gets smaller year by year. It could be that re-electoral incentives affect the behavior of parties that govern councils alone. I also analyze the effect in several areas of spending and revenues. The data set that I use in this study includes data from 445 municipalities for a varying number of years between 1980–2010, which makes 13,104 observations in total. These data cover results of 3,778 elections. This study develops a simple though new way of analyzing the research question. I use seat division rules to compute the running variable for the regression discontinuity design. Moreover, most previous studies on the topic compare outcomes in different countries. In this study, the outcomes are compared within the same system, i.e. all units share the same institutional background. Last, the topic has not been studied in the Finnish context before, even though single-party control is common phenomenon and municipalities have an important role in the Finnish system.