Separated Under the Same Roof: Political Fragmentation and Public Policies

Mardi | 2018-10-02
Salle des thèses 16h – 17h20


This work studies the effect of the political fragmentation in a ruling coalition on fiscal policies. In more fragmented coalitions parties have an incentive to overspend, free riding on deficit. At the same time, a larger political fragmentation reduces the incentives of parties to tax their constituents, therefore decreasing total taxation. Using data on Italian municipalities, the paper exploits the random allocation of parties on the ballot as instrument for political fragmentation. In a context where municipalities cannot run deficits, empirical results show that a larger fragmentation reduces revenues and spending. Moreover, an RD design shows that mayors that receive more than 50% votes in the election, with respect to run-off elected mayors, increase taxes when facing a larger fragmentation, reducing the negative effect of fragmentation on revenues.