Ideology or voters? A quasi-experimental test of why left-wing governments spend more

Abstract

This paper analyzes and compares the explanatory powers of the two main theories describing the processes that lead left-wing governments to spend more than right-wing ones: (1) a demand-driven process whereby voters demand more expenditures and thus vote for the left; (2) a supply-driven process whereby governments in office follow their preferences/ideologies at the cost of deviating from constituents’ demands (party preference hypothesis). We provide a model that identifies the predictions associated with those hypotheses and show that they generate a problem of observational equivalence in empirical analysis. We solve the problem by applying two identification strategies, Regression Discontinuity Design and Propensity Score Matching. Using data from the French local public sector, our estimates provide mixed evidence of supply-side effects. Left-wing governments facing socioeconomic situations analogous to right-wing ones seem not to spend more on social services, but they do appear to spend more on other types of expenditure programs.