Electoral Systems and Fiscal Policy Outcomes: Evidence from Polish Municipalities

Abstract

Political economy literature theorizes various channels through which electoral systems determine fiscal outcomes. Empirical evidence supporting or rejecting theoretical arguments is not abundant and not sufficiently robust, however. As pointed out by Acemoglu (2005), the existing empirical literature linking electoral systems and fiscal outcomes does not present a causal relationship. Standard reasons apply, such as omitted variable bias, infrequent institutional changes and small samples. This paper tries to overcome these problems. It uses a quasi-experimental empirical setting and provides evidence that electoral systems influence selected fiscal outcomes. Empirical design employed in this paper rests on discontinuity in application of electoral rules in Polish municipalities in the period 2002-2012. Results presented confirm theoretical arguments. As compared to majoritarian regimes, proportional electoral systems tend to promote broad public expenditure and undermine narrow public spending. Additionally, proportional systems lead to larger vertical fiscal imbalance, which is measured as a share of local expenditure covered through intergovernmental transfers and borrowings. The average treatment effects presented in the paper are not only statistically significant but also non-negligible from the economic point of view and robust to numerous alternative specifications and falsification tests.