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Published in: Public Choice 1-2/2020

20-08-2019

Who seeks reelection: local fiscal restraints and political selection

Authors: Susana Peralta, João Pereira dos Santos

Published in: Public Choice | Issue 1-2/2020

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Abstract

This paper analyzes the consequences of local fiscal autonomy with respect to political selection. We propose a model of political careers wherein the decisions to become candidates and to seek reelection are both endogenous. Private-sector aptitude and political ability are private information; the latter is revealed to the incumbent during her first period in office. We show that, following an unanticipated reduction in the returns from holding office, incumbents with high market ability are more likely to refrain from running for office again than their lower-ability counterparts. We test that prediction using an unexpected reduction in the upper bound of the municipal property tax rate, announced by Portugal’s prime minister in July 2008, just 15 months before the local elections. We rely on a comprehensive data set for all Portuguese mainland municipalities for the 2005 and 2009 elections, including the characteristics of the municipalities and individual mayors. We employ a difference-in-differences strategy to show that affected mayors—those who were forced to reduce the property tax rate, and thus faced a sharp tax revenue decline—are less likely to seek reelection. This effect is driven by high-professional-status incumbents.

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Appendix
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Footnotes
2
When it comes to local political careers, a number of papers examine the determinants of mayors’ reelection decisions, emphasizing economic drivers such as unemployment and fiscal variables, including the countries of Brazil (Sakurai and Menezes-Filho 2008), Portugal (Castro and Martins 2013a, b), France (Cassette and Farvaque 2014), Spain (Balaguer-Coll et al. 2015), and Greece (Chortareas et al. 2016).
 
3
Interestingly, papers by Ferraz and Finan (2009), Beath et al. (2016), Grossman and Baldassarri (2012), and Fisman et al. (2016) examine political selection in developing countries. Since educated people are relatively scarce in those countries, educational attainment is more likely to be a determinant of good governance. Beath et al. (2016) report that only 9% of male council members in Afghanistan have finished high school and only 17% have finished middle school, in sharp contrast to the evidence in Dal Bó et al. (2017) that the average Swedish politician spends between 12.8 and 14.5 years on formal education.
 
4
Actually, the author finds no statistical difference between the treated and comparison municipalities for all but one proxy of politician valence considered, namely, “high professional status”.
 
5
The seminal papers on seeking reelection focus on the retirement decisions of members of the US Congress, which is related to a small expected margin of victory, a fractionalized legislative process, shrill constituents and abrasive single-issue interest groups, lack of privacy, the large amount of fundraising required to conduct modern campaigns, the desire to acquire committee power, and the demise of seniority systems (Hibbing 1982; Moore and Hibbing 1992).
 
6
For a discussion of the appropriateness of using education as a proxy for a politician’s leadership qualities, see Carnes and Lupu (2016).
 
7
Our model thus reverses the assumptions in Mattozzi and Merlo (2008), where market ability has discrete support and is not known, and political ability has continuous support and is known to the individual.
 
8
A recent empirical paper uses within-party variation in close elections in the Finnish open-list proportional system to show that public employees have an information advantage over other politicians and are better able to increase spending (Hyytinen et al. 2018). Although the learning agents in that paper are public employees and not politicians per se, the evidence supports our assumption that political jobs require learning.
 
9
Mattozzi and Merlo (2008) assume that the probability of high market returns, conditional on political ability, is \(\alpha +\lambda p\).
 
10
Introducing a constant political salary does not change the qualitative nature of the results.
 
11
In a related reference, Mattozzi and Merlo (2015) discuss the role of political parties in recruiting mediocre individuals into the political market. In the decision to seek reelection, as anecdotical evidence discussed in Sect. 3 clarifies, we contend that the party’s role is limited.
 
12
Details in the “Appendix”.
 
13
Details in the “Appendix”.
 
14
A related model prediction is that the average level of education is higher in the pool of first-term mayoral candidates than in that of incumbents who seek reelection in the treated group of municipalities. However, we cannot test that prediction because of lack of data on the overall pool of candidates.
 
15
The political spectrum in municipalities is dominated by the local branches of the parties that are represented in the national parliament. From right to left, Portuguese national parties are the Popular Party (CDS-PP), the center-right Social-Democrats (PSD), the Socialists (PS), the Communist Party (PCP), and the Left Bloc (BE). In addition, lists of organized independent citizens may contest the elections.
 
16
The candidates were Isaltino Morais from Oeiras, Valentim Loureiro from Gondomar, Fátima Felgueiras from Felgueiras, and Avelino Ferreira Torres from Marco de Canavezes.
 
17
Law no. 159/99 September 1999.
 
18
The previous property tax was the Contribuição Autárquica, implemented in 1989.
 
19
The minimum (unchanged) tax is 0.4 and 0.2, respectively (cf. Law 64/2008, December).
 
21
In 2005, the Portuguese parliament issued a law limiting the number of consecutive terms to three. However, as this was not implemented retroactively, terms counts began in the 2005 local elections for all incumbents, such that the restriction became binding in 2013.
 
22
The 30 municipalities constituting the autonomous regions of Azores and Madeira are excluded owing to their different institutional backgrounds.
 
23
The official data contain missing observations for some mayoral characteristics, which we supplemented with information from the websites of several municipalities.
 
24
Bosch and Solé-Ollé (2007) find that property tax increases have a negative impact on incumbent vote share in Spanish municipalities.
 
25
This controls for potential reelection opportunism by Portuguese mayors as found by Aidt et al. (2011). Similar results were found for Germany (Galli and Rossi 2002), Russia (Akhmedov and Zhuravskaya 2004), Brazil (Sakurai and Menezes-Filho 2008), and Italy (Padovano 2012). Brender (2003) and Drazen and Eslava (2010) show that local government debt reduces reelection chances, while Cassette and Farvaque (2014) find that pre-election debt favors incumbents.
 
26
See Martins and Veiga (2014) for the impact of voter turnout on the incumbent mayor’s vote share.
 
27
Fox and Lawless (2004) find that women who share the same personal characteristics and professional credentials as men express significantly weaker levels of political ambition for holding elective office.
 
28
Some models predict that higher salaries attract better-quality individuals (with college education as proxy) to run for office (Besley 2004; Caselli and Morelli 2004), while others predict the opposite outcome (Messner and Polborn 2004; Mattozzi and Merlo 2008).
 
29
Akhmedov and Zhuravskaya (2004), in their study of opportunistic business cycles in Russian regions, measure voter awareness using education and urbanization. For Portugal, Martins and Veiga (2013) find that national and subnational economic conditions have an impact on municipal electoral outcomes.
 
30
A change in the local tax range (in their case, an increase in the lower bound) was used as a quasi-experimental setup by Lyytikäinen (2012).
 
31
Revelli (2016) also defines the treated municipalities as those facing a local tax freeze by the central government.
 
32
There are minor differences in the following observables: local corporate tax surcharge (“derrama”), abstention rate, and age dependency ratio, and rate of property tax increase. The last is a direct consequence of the treatment.
 
33
NUTS 2 areas comprise five regions in mainland Portugal (North, Center, Lisbon, Alentejo, and Algarve), while the NUTS 3 level comprises 28 smaller groups of local authorities.
 
34
Bordignon et al. (2017) studies a similar reform in Italy.
 
35
It could be that mayors are discouraged from seeking reelection because they are forced to enact an unpopular measure. This is not the case in our setting, where the tax is set to decrease. For evidence that higher taxes reduce reelection prospects, see Bosch and Solé-Ollé (2007).
 
36
While the heterogeneous effect along previous occupation is motivated by the theoretical model and is the main focus of our paper, we include in the “Appendix” results of heterogeneous effects along ideology (left vs. right—Tables 12, 13) and mayor age (above and below the median age—Tables 14, 15). Neither yields significant results, which reinforces the mechanism of the outside option that our theoretical model puts forward.
 
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Metadata
Title
Who seeks reelection: local fiscal restraints and political selection
Authors
Susana Peralta
João Pereira dos Santos
Publication date
20-08-2019
Publisher
Springer US
Published in
Public Choice / Issue 1-2/2020
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI
https://doi.org/10.1007/s11127-019-00702-7

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