Top

International Tax and Public Finance

Published in:

01-10-2016

Voters prefer more qualified mayors, but does it matter for public finances? Evidence for Germany

Authors: Ronny Freier, Sebastian Thomasius

Published in: International Tax and Public Finance | Issue 5/2016

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

This paper studies the importance of politicians’ qualification, in terms of education and experience, for fiscal outcomes. The analysis is based on a large panel for 2031 German municipalities for which we have collected information on municipal budgets as well as the election results and qualification levels of mayoral candidates. We principally use a regression discontinuity design focusing on close elections to estimate causal effects. We find that mayors with prior experience in office have a tendency to reduce the level of local public debt, lower total municipal expenditures and decrease the local taxes, even though these results are only significant in some specifications. In contrast, the education level of the mayor exerts no significant effects on the overall fiscal performance of the municipality. The results are partly surprising as both education and experience are shown to matter greatly in the electoral success of mayoral candidates.

previous article Taxation without representation: local fiscal response to intergovernmental transfers in China

next article How to stop the race to the bottom

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Available only for authorised users

Note that there is also evidence that the qualification level of politicians increases in a highly competitive political environment, which is further evidence that voters indeed put value on the qualification level of politicians (see Galasso and Nannicini 2011; Gagliarducci and Nannicini 2013; Paola and Scoppa 2011).

Thomasius (2013, ch. 2) provides an overview of the relevant literature.

On a technical note, we want to emphasize that the Freier (2015) paper estimates party incumbency effects, while the present paper is really concerned with the electoral advantage of experienced candidates, i.e., candidate (or legislator) incumbency effects. We discuss this distinction further in the main text.

We still believe that the hypothesis is justifiable. We can see that gender has no or even a positive effect in the Scandinavian setting, which is distinctly different from our setting in a conservative state. The paper by Mechtel (2014) looks at council elections and controls for rank in the party lists. As women are typically represented at the bottom of the list, they receive high relative votes to low-ranked men. However, those positions have a low probability of being elected any way, which is different in the our mayoral setting.

Thomasius (2013, ch. 2) provides an overview of the relevant literature.

Feld and Schaltegger (2010), e.g., find similar results for the federal finance minister in Switzerland but argue that high-tenured finance ministers are an indicator of government stability.

Egger and Koethenbuerger (2010) argue that the Bavarian towns in our study are indeed prone to large amounts of pork-barrel spending due to the overspending incentives of town counselors. Note that this result has also been discussed by Ade and Freier (2011).

As noted by one anonymous referee, there is also an argument that more experienced mayors may be more active in bringing in transfers. From this, it would follow that total budgets might well be increasing. However, this also works to lower debt (or leave it unaffected).

See Bundesbank (2007).

In all other states, the mayor still has an important, but not such a prominent position. In Hessian, e.g., the mayor is only one member of an executive board which grants equal rights to all members.

The articles 37,38,39 in the state constitution that governs municipalities in Bavaria put the following tasks in the hands of the mayor: (1) The mayor is in charge of all operative decisions (that are not of fundamental importance or increase the liabilities of the town above all burdens). (2). She administers all tasks assigned from higher governmental tiers. (3) She is free to decide on all tasks that require some level of confidentiality. (4) She is in charge of all decisions on personnel. (5) She can be assigned further rights and duties by the council if the council so will. Also, the mayor also has the right to make decisions in pressing matters on issues that she is formally not responsible; however, she has to inform the council at the next meeting. Finally, all deputy mayors or full-time members of the council receive their rights and duties directly from the first mayor (an important difference to the setting in other states).

Note that, under the current law, a full-time mayor is required if a municipality exceeds 10,000 inhabitants. Municipalities can have a full-time mayor if they have between 5000 and 10,000 inhabitants. However, they may deviate and employ a part-time mayor instead. With fewer than 5000 residents, a municipality shall have a part-time mayor but can also opt to employ a full-time mayor, see Ade and Freier (2011).

Other German states (except Baden-Württemberg) introduced direct elections for the mayor only after reunification, see Ade (2014).

Note that a municipality may deviate from the usual election dates if its mayor passed away or was removed from office.

The CSU exists only in the federal state of Bavaria. At the federal level, the party is closely connected with the Christlich Demokratische Union (CDU) and forms one group within the federal parliament.

Together with 25 independent cities, there are a total of 2056 authorities at the lowest tier in Bavaria. Out of the 12.5 million inhabitants in Bavaria in 2007, roughly 9 million live in those 2031 municipalities and the remaining 3.5 million in the independent cities.

Initially, our data set included 25,085 elections since 1950. However, we excluded 34 elections due to missing information about the total number of voters or incomplete election results. Among them are 22 elections with only one candidate.

The difference between 1901 elections without a result and causing a run-off election and only 1892 run-off elections held in our sample is largely due to the elections that were excluded due to incomplete data. Recall, there was only one candidate for the majority of excluded elections, see footnote 17.

Overall, there are 3997 different professions indicated on the ballot sheet for all candidates running for the mayor’s office between 1950 and 2009.

We rely on the national, so-called Classification System of Occupations 1988 (Klassifikation der Berufe or KldB 1988) used by Germany’s Federal Employment Agency (BA), who provided us with the data. The data cover all employees subject to social insurance contributions in Bavaria. Due to limited data availability, we assigned the share of university graduates in 1999 to all candidates running for election before December 31, 2000, and the share of graduates in 2009 to all candidates running for election thereafter. In both cases, we assign the gender-specific shares of graduates, i.e., a female candidate working as a farmer is assigned the average share of university graduates among women working in agriculture and a male candidate, respectively, the share of graduates among men.

Universities of applied sciences often run more specialized track and focus on more narrow field. Note that the distinction should not necessarily be compared with full universities and community colleges in the USA.

As pointed out by one anonymous referee, it would have been interesting the look for heterogeneous effects along such a dimension. Also, a distinction of elite universities is not possible in our analysis.

At the federal and state level, female representation is much higher, with more than 30 % female members of parliament (Bundestag) and about 30 % female members of state parliaments. Given that approximately 50 % of the population is female, these shares are still well below the population mean (McKay 2004).

Note that we are not using municipal fixed effects in the RDD specifications (neither in the fuzzy nor the sharp model). While it would generally be desirable to also include such fixed effects, it is not feasible in our application. Unfortunately, it is too much to ask of our data because a fixed effect model would require observations from the same municipality to repeatedly fall into the sample of close elections and change treatment status. This highlights that our RDD specifications are essentially cross-sectional methods even when the underlying data have repeated information on the same municipalities.

The results are based on OLS regression using data for all elections between 1950 and 2009 in 2031 German municipalities from Bavaria. Using a restricted sample with elections between 1984 and 2009 only (as for the analysis on fiscal outcomes), we obtain almost exactly similar results. Results are not shown here, but are available upon request. Also, the results shown have year and county fixed effects. We also rerun the model using municipal fixed effects and obtained similar results even then (results not reported).

While we can only use a simple regression control framework in the setting for specific candidates, Freier (2015) can rely on a RDD approach to have exogenous variation in the party identity of the previous mayor and estimates the advantage to any candidate of that party in the next election. As the Freier (2015) paper concerns only party incumbency effects, that paper puts much of its focus on heterogeneity in the electoral advantage (by type of mayoral position (full-time/part-time), effects over time, by partisan identity, by key financial success measures over the past election period and by comparing the effects in different German states which constitute different roles to the local mayor).

This drop in significance is at least partly driven by the fact that this selected sample has much less higher qualified candidates and more so in larger towns (which have higher qualified candidates on average). It therefore becomes harder to estimate the interaction terms in our data.

We also repeat the analysis using the probability of winning as outcome variable and confirm that the above effects are also of equal importance for the actual chance to win an election (results are not shown here, but are available upon request).

Given an average level of debt of about 1100 Euro per capita, an effect of −134 Euro corresponds to a 12 %.

Similar to above, we use changes in the three local tax rate multipliers (over 5 years following the mayoral election) as the dependent variables in the regressions.

The fact that effects cannot be shown for the local trade tax, may in part be explained by local tax competition. While inhabitants that are exposed to property taxes are said to be immobile (especially given the relatively small effect that property taxes have on their entire tax bill), firms that pay the trade tax are more flexible and are more likely to respond to a change in taxation.

As pointed out by one referee, we should mention that mayors in Germany do only have limited possibilities to influence fees. An effect that may signal the ability of a mayor to be a better manager of public services is therefore hard to identify in the data. As mentioned above, this does not mean that a ‘better’ mayor cannot still have an effect on the quality of the service. Given that the fee for the service is so hard to change, we might expect that the quality dimension might be more important. Unfortunately, due to a lack of good data on this, we cannot assess whether this is of importance.

To shorten the exposition, we reduced the number of specifications to the main three for both experience and education.

Ade, F. (2014). Do constitutions matter? Evidence from a natural experiment at the municipality level. Public Choice, 160(3), 367–389.CrossRef

Ade F., & Freier, R. (2011). When can we trust population thresholds in regression discontinuity designs? DIW Discussion Paper, 1136. German Institute for Economic Research, Berlin. ISSN 1433-0210.

Ade, F., & Freier, R. (2013). Divided government versus incumbency externality effect: Quasi-experimental evidence on multiple voting decisions. European Economic Review, 64, 1–20.CrossRef

Alesina, A., & Rosenthal, H. (1995). Partisan politics, divided government, and the economy. Cambridge: Cambridge University Press.CrossRef

Ansolabehere, S., Snyder, J. M., & Stewart, C. (2000). Old voters, new voters, and the personal vote: Using redistricting to measure the incumbency advantage. American Journal of Political Science, 44(1), 17–34.CrossRef

Bartels, L. M. (1996). Uninformed votes: Information effects in presidential elections. American Journal of Political Science, 40(1), 194–230. ISSN 0092-5853.CrossRef

Berggren, N., Jordahl, H., & Poutvaara, P. (2010b). The right look: Conservative politicians look better and their voters reward it. CESifo Working Papers, 3310.

Berggren, N., Jordahl, H., & Poutvaara, P. (2010a). The looks of a winner: Beauty and electoral success. Journal of Public Economics, 94(1), 8–15.CrossRef

Besley, T., Montalvo, J. G., & Reynal-Querol, M. (2011). Do educated leaders matter? The Economic Journal, 121(554), F205–227. doi:10.1111/j.1468-0297.2011.02448.x. ISSN 0013-0133.CrossRef

Besley, T., & Case, A. (1995b). Does electoral accountability affect economic policy choices? Evidence from gubernatorial term limits. The Quarterly Journal of Economics, 110(3), 769–798. ISSN 0033-5533.CrossRef

Besley, T., & Case, A. (1995a). Incumbent behavior: Vote-seeking, tax-setting, and yardstick competition. American Economic Review, 85(1), 25–45.

Bickers, K. N., & Stein, R. M. (1996). The electoral dynamics of the federal pork barrel. American Journal of Political Science, 40(4), 1300–1326.CrossRef

Buchanan, J. M., & Tullock, G. (1962). The Calculus of Consent. Ann Arbor: University of Michigan Press.CrossRef

Bundesbank, Deutsche. (2007). Deutsche, Zur Entwicklung der Gemeindefinanzen seit dem Jahr 2000. Monatsbericht, Juli, 29–49.

Cain, B., Ferejohn, J., & Fiorina, M. (1984). The constituency service basis of the personal vote for U.S. representatives and British members of parliament. American Political Science Review, 78(1), 110–125.CrossRef

Caughey, D., & Sekhon, J. S. (2011). Elections and the regression discontinuity design: Lessons from close U.S. house races, 1942–2008. Political Analysis, 19(4), 385–408. doi:10.1093/pan/mpr032. ISSN 1047-1987.CrossRef

Congleton, R. D., & Zhang, Y. (2013). Is it all about competence? The human capital of us presidents and economic performance. Constitutional Political Economy, 24(2), 108–124.CrossRef

Cover, A. D. (1977). One good term deserves another: The advantage of incumbency in congressional elections. American Journal of Political Science, 21(3), 523–541.CrossRef

Cox, G. W., & Katz, J. N. (1996). Why did the incumbency advantage in U.S. House elections grow? American Journal of Political Science, 40(2), 478–497.CrossRef

Dreher, A., Lamla, M. J., Lein, S. M., & Somogyi, F. (2009). The impact of political leaders’ profession and education on reforms. Journal of Comparative Economics, 37(1), 169–193. doi:10.1016/j.jce.2008.08.005. ISSN 0147-5967.CrossRef

Egger, P., & Koethenbuerger, M. (2010). Government spending and legislative organization: Quasi-experimental evidence from Germany. American Economic Journal: Applied Economics, 2(4), 200–212. doi:10.1257/app.2.4.200.

Erikson, R. S. (1971). The advantage of incumbency in congressional elections. Polity, 3(3), 395–405.CrossRef

Farvaque, É., Hammadou, H., & Stanek, P. (2009). Select your committee: The impact of central bankers background on inflation. Economie Internationale, 117(1), 99–129.

Farvaque, É., Hammadou, H., & Stanek, P. (2011). Selecting your inflation targeters: Background and performance of monetary policy committee members. German Economic Review, 12(2), 223–238. doi:10.1111/j.1468-0475.2010.00520.x. ISSN 1468-0475.CrossRef

Feld, L. P., & Schaltegger, C. A. (2010). Political stability and fiscal policy: Time series evidence for the Swiss federal level since 1849. Public Choice, 144(3), 505–534. doi:10.1007/s11127-010-9677-7. ISSN 0048–5829.CrossRef

Freier, R. (2015). The major’s advantage: Causal evidence on incumbency effects in German mayoral elections. European Journal of Political Economy. doi:10.1016/j.ejpeeco.2015.07.005.

Gagliarducci, S., & Nannicini, T. (2013). Do better paid politicians perform better? Disentangling incentives from selection. Journal of the European Economic Association, 11(2), 369–398. ISSN 1542-4766.CrossRef

Galasso, V., & Nannicini, T. (2011). Competing on good politicians. The American Political Science Review, 105(1), 79–99. doi:10.1017/S0003055410000535. ISSN 0003-0554.CrossRef

Gelman, A., & King, G. (1990). Estimating incumbency advantage without bias. American Journal of Political Science, 34(4), 1142–1164.CrossRef

Göhlmann, S., & Vaubel, R. (2007). The educational and occupational background of central bankers and its effect on inflation: An empirical analysis. European Economic Review, 51(4), 925–941. ISSN 0014-2921.CrossRef

Hagen, J. V., & Harden, I. J. (1995). Budget processes and commitment to fiscal discipline: Papers and proceedings of the ninth annual congress European economic association. European Economic Review, 39(3–4), 771–779. ISSN 0014-2921.CrossRef

Hahn, J., Todd, P., & Klaauw, W. (2001). Identification and estimation of treatment effects with a regression-discontinuity design. Econometrica, 69(1), 201–209. doi:10.1111/1468-0262.00183. ISSN 0012-9682.CrossRef

Hayo, B., & Neumeier, F. (2014). Political leaders’ socioeconomic background and fiscal performance in Germany. European Journal of Political Economy, 34, 184–205.CrossRef

Imbens, G. W., & Kalyanaraman, K. (2012). Optimal bandwidth choice for the regression discontinuity estimator. The Review of Economic Studies, 79(3), 933–959. doi:10.1093/restud/rdr043. ISSN 00346527.CrossRef

Jacobson, G. C. (1987). The marginals never vanished: Incumbency and competition in elections to the U.S. House of Representatives, 1952–82. American Journal of Political Science, 31(1), 126–141.CrossRef

Jochimsen, B., & Thomasius, S. (2014). The perfect finance minister: Whom to appoint as finance minister to balance the budget. European Journal of Political Economy, 34, 390–408.CrossRef

King, G., & Gelman, A. (1991). Systemic consequences of incumbency advantage in U.S. House elections. American Journal of Political Science, 35(1), 110–138.CrossRef

Krehbiel, K., & Wright, J. R. (1983). The incumbency effect in congressional elections: A test of two explanations. American Journal of Political Science, 27(1), 140–157.CrossRef

Lee, D. S. (2008). Randomized experiments from non-random selection in U.S. House elections. Journal of Econometrics, 142(2), 675–697. doi:10.1016/j.jeconom.2007.05.004. ISSN 0304-4076.CrossRef

Lee, D. S., & Lemieux, T. (2010). Regression discontinuity designs in economics. Journal of Economic Literature, 48(2), 281–355. doi:10.1257/jel.48.2.281. ISSN 0022-0515.CrossRef

Levitt, S. D., & Wolfram, C. D. (1997). Decomposing the sources of incumbency advantage in the U.S. House. Legislative Studies Quarterly, 22(1), 45–60.CrossRef

McCrary, J. (2008). Manipulation of the running variable in the regression discontinuity design: A density test. Journal of Econometrics, 142(2), 698–714. doi:10.1016/j.jeconom.2007.05.005. ISSN 0304-4076.CrossRef

McDermott, M. L. (1998). Race and gender cues in low-information elections. Political Research Quarterly, 51(4), 895–918. doi:10.1177/106591299805100403. ISSN 1065-9129.CrossRef

McDermott, M. L. (2005). Candidate occupations and voter information shortcuts. The Journal of Politics, 67(1), 201–219. doi:10.1111/j.1468-2508.2005.00314.x. ISSN 0022-3816.CrossRef

McKay, J. (2004). Women in German politics: Still jobs for the boys? German Politics, 13(1), 56–80. doi:10.1080/0964400042000245398. ISSN 0964-4008.CrossRef

Mechtel, M. (2014). It’s the occupation, stupid! explaining candidates’ success in low-information elections. European Journal of Political Economy, 33, 53–70.CrossRef

Mincer, J. (1958). Investment in human capital and personal income distribution. Journal of Political Economy, 66(4), 281–302. ISSN 0022-3808.CrossRef

Paola, M d, & Scoppa, V. (2011). Political competition and politician quality: Evidence from Italian municipalities. Public Choice, 148(3–4), 547–559. doi:10.1007/s11127-010-9683-9. ISSN 0048-5829.CrossRef

Persson, T., Roland, G., & Tabellini, G. (1997). Separation of powers and political accountability. The Quarterly Journal of Economics, 112(4), 1163–1202. ISSN 0033-5533.CrossRef

Persson, T., & Tabellini, G. (2000). Political economics. Cambridge: The MIT Press.

Pettersson-Lidbom, P. (2008). Do parties matter for economic outcomes? A regression-discontinuity approach. Journal of the European Economic Association, 6(5), 1037–1056. doi:10.1162/JEEA.2008.6.5.1037. ISSN 1542-4766.CrossRef

Rogoff, K. S., & Sibert, A. (1988). Elections and macroeconomic policy cycles. The Review of Economic Studies, 55(1), 1–16. ISSN 00346527.CrossRef

Sajons, C.J. (2011). Essays in immigration economics and political economy. PhD thesis, Universitat Pompeu Fabra, Departament d’Economia i Empresa, Barcelona. URL http://www.tdx.cat/bitstream/handle/10803/79175/tjcs.pdf.

Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374. doi:10.2307/1882010. ISSN 0033-5533.CrossRef

Stratmann, T. (2005). Ballot access restrictions and candidate entry in elections. European Journal of Political Economy, 21(1), 59–71.CrossRef

Stratmann, T. (2006). Contribution limits and the effectiveness of campaign spending. Public Choice, 129(3–4), 461–474.CrossRef

Stratmann, T. (2013). The effects of earmarks on the likelihood of reelection. European Journal of Political Economy, 32, 341–355.CrossRef

Thistlethwaite, D. L., & Campbell, D. T. (1960). Regression-discontinuity analysis: An alternative to the ex post facto experiment. Journal of Educational Psychology, 51(6), 309–317. doi:10.1037/h0044319. ISSN 0022-0663.CrossRef

Thomasius, S. (2013). Political decision makers and their relevance for public finances. Baden-Baden: Nomos.CrossRef

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124–1131. doi:10.1126/science.185.4157.1124. ISSN 0036-8075.CrossRef

Title: Voters prefer more qualified mayors, but does it matter for public finances? Evidence for Germany
Authors: Ronny Freier
Sebastian Thomasius
Publication date: 01-10-2016
Publisher: Springer US
Published in: International Tax and Public Finance / Issue 5/2016
Print ISSN: 0927-5940
Electronic ISSN: 1573-6970
DOI: https://doi.org/10.1007/s10797-015-9382-z

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 5/2016

How to stop the race to the bottom

The political economy of pricing and capacity decisions for congestible local public goods in a federal state

Restricted interest deductibility and multinationals’ use of internal debt finance

Amalgamation, free-rider behavior, and regulation

Public employment and compensation reform: the role of social dialogue and structural measures

Signaling, network externalities, and subsidies