Partisan Impact on Local Government Spending - The Effects of Party Politics on Municipal Expenditure in Sweden

University essay from Lunds universitet/Department of Economics

Abstract: This essay aims to examine whether there is a partisan influence on local government spending using three different measures, ideology, fragmentation and constellations of government. The ideology measure examines the share of socialists (left-wing parties) in the council. Fragmentation consists of a Herfindahl index which uses information on number of parties in the council and their respective strength, and number of committees in the political organization. The third measure is political regimes and tries to capture the effects of constellations of government. Three hypotheses are introduced to examine partisan impact where it is assumed that a higher share of left-wing parties lead to increased spending. Because of the common pool problem, that groups that assert pressure on the budget only internalizes parts of the costs of increased spending, fragmentation and weak forms of government are expected to lead to increased spending. The essay also tries to account for the political setting in Sweden in order to evaluate the accuracy of the measures. Using a panel data analysis on data from a selection of 17 municipalities during 1983-1999, the results show that there is a partisan impact on municipal expenditure and it is inflicted by ideology. An increase in left-wing party share by 1 % increases total and current expenditure by 0,4-0,5% of mean per capita spending. None of the other two measures come out significant and indicates that neither fragmentation nor constellation of government matter for local government spending. However, there are some technical and data problems that make inference difficult. The results also show that level of debt is positively related to total expenditure and municipal income is positively related to current expenditure. The demographic parameter shows that there are scale economies in the selection of municipalities.