Political competition, party polarization, and government performance

Ideology may also refer to ethnic, racial, or religious divisions in society; cf. Easterly and Levine (1997) and Alesina et al. (1999).

Other studies have addressed local government performance, including Borge and Naper (2006), Borge et al. Borge et al. (2008), Bruns and Himmler (2011), Geys et al. (2010), Hauner and Kyobe (2008), Padovano and Ricciuti (2009), and Petterson-Lidbom (2006). These studies do not analyze the impact of party competition on government performance.

Ideological polarization has increased in many national legislatures. In the U.S. case, the ideological distance between the Republican and Democrat parties has widened. For example, party polarization has grown considerably as measured by representatives’ voting patterns in Congress (McCarthy et al. 2006, Table 1.1). Ideological distances between political parties have also increased in many European countries. Analyses addressing the European setting (based on data from the Manifesto project) suggest that parties take more divergent ideological positions nowadays (Schneider 2004).

Similar models have been suggested in the corporate governance literature. For example, Bertrand and Mullainathan (2003) analyze the impact of antitakeover laws. When firms are insulated from takeovers, managers prefer “to enjoy the quit life”.

Equilibrium effort levels are: \( e_{A} = \frac{2}{3}x\tilde{v}_{m} - \frac{x}{\varphi } + x^{2} \) and \( e_{B} = - \frac{2}{3}x\tilde{v}_{m} - \frac{x}{\varphi } + x^{2} \). The equilibrium probability that party A wins the election is: \( \pi_{A} \left( { = 1 - \pi_{B} } \right) = \frac{1}{2} - \frac{1}{3}x\tilde{v}_{m} \).

The probabilistic voting model assumes full commitment, which is problematic in an electoral agency setting. As an alternative, the hypothesis can be derived from a model wherein parties cannot commit to effort levels before the election. As in Ferejohn (1986), a decisive voter sets a reservation utility for reelecting the incumbent. The two-period game can be defined in the following way: (1) The median voter declares a reservation utility for reelecting the incumbent party. (2) The incumbent party decides an effort level and implements his preferred ideological policy. (3) The voter observes the incumbent’s effort and decides whether or not to reelect the incumbent. (4) Whichever party is elected for the second period implements its preferred ideological policies and sets the effort for the second period. The game ends. Both parties and the voter use a common discount factor \( \updelta\, < 1 \). Lopsided elections: In the final period, either party will implement its preferred ideological policy, and invest zero effort. Suppose the voter’s position is closer to party A than party B \( \left( {v_{m} > 0} \right) \). The voter will always reelect the ideologically ‘closer’ party in the final period. Therefore, neither party will exert effort in the first period. Not lopsided elections: Consider the case when the voter is ideologically indifferent to the parties, that is \( v_{m} = 0 \). With indifference we assume that the voter can commit to reelect the incumbent provided it delivers the reservation utility. Each of the parties will benefit from exerting effort in the first period if \( \bar{e}_{P} \le \delta x^{2} ,P = A,B \).Therefore, greater party polarization (x) increases effort in balanced elections, while polarization has no effect in elections when one of the parties enjoys a dominant electoral position. The model can be elaborated as a game over an infinite time horizon.

We have excluded Oslo, the capital, from the analyses, since it is both a municipality and a county.

The Polls-Of-Polls organization provides further documentation, see http://​www.​pollofpolls.​no/​?​cmd=​Kommentarer&​do=​vis&​kommentarid=​689.

Existing studies have measured political competition as the absolute difference in voter support between the right-wing and left-wing party bloc in each election (Besley and Case 2003; Svaleryd and Vlachos 2009). The current conceptualization is slightly different as it allows for an enduring predisposition to support one party bloc.

This conceptualization implies that estimation with municipality fixed effects is not possible as the DOMINANCE indicator is relatively stable. Besley and Case (2003) use annual data on US states for the period 1950 to 1990, which allows them to include state fixed effects. Svalerud and Vlachos (2009) employ annual data on Swedish local government from 1974 to 2003, and include municipality fixed effects.

The data on election outcomes, demographic and budgetary allocations have been provided by the Norwegian Social Science Data Services (NSD). NSD is not responsible for the analysis or interpretations presented in this paper.

The surveys of local council members have been carried out by Statistics Norway on behalf of Lars Chr. Monkerud and Rune J. Sørensen at BI Norwegian Business School. The mayors and deputy mayors of the remaining municipalities were asked to respond to the same question as well.

The response rate varies between municipalities, from 29 to 80 % (2003–2007) and 29 to 82 % (2007–2011). I correlate the response rate with measured levels of party polarization. The Pearson correlation coefficient is r = 0.023 (N = 120) in the first election period, and r = 0.109 (N = 120) in the second period. None of the correlations are statistically significant at the 10 % level. Including the response rate as a control variable in the regression analysis had little bearing on the results obtained.

We appreciate the assistance of the Ministry of Local Government and Regional Development for access to the data on production and revenue.

This refers to the OUTPUT indicator for the 2008–2010 period.

I have posted further information on the construction of the production index (OUTPUT) on my homepage.

The maximum income tax rates have varied from 12.05 to 13.30 % in the 2001–2010 periods.

We include property tax revenue as part of the free revenues. About 300 municipalities levy a tax on properties; this revenue accounts for nearly 2 % of total current revenues. Local property taxes can be levied on land and buildings according to specific criteria. The tax rate can vary from 2 to 7 ‰ of the property value. When a council decides to levy property tax, 2 ‰ is the maximum rate the first year. Before 2007, property taxes could only be levied in urban areas. Outside these areas, property taxes could only be levied in industrial plants. From 2007, rural councils were allowed to levy property tax on the whole municipality.

Data on adjusted free revenues have been provided by the Ministry of Local Government. The adjustment includes the following criteria (for 2005; weights in parentheses): basic criterion (independent of population size; 0.025), population 0–5 years (0.023), population 6–15 years (0.307), population 16–66 years (0.121), population 67–79 years (0.085), population 80–89 years (0.133), population 90 years and over (0.049), divorced and separated persons 16–59 years (0.038), unemployed 16–59 years (0.011), death rate (0.025), non-married persons 67 years and over (0.025), share of immigrants (0.005), estimated travel time to center (0.015), distance within living zone (0.010), distance to the nearest neighboring district (0.011), mentally impaired 16 years and over (0.066), mentally impaired under 16 years (0.004), urban settlement (0.042), agricultural employment (0.005). The adjustment does not take into account differences in capital costs and regional variations in the social security contributions.

Note that the funding of infrastructure services (water supply, sewage, garbage collection and disposal, electricity distribution) comes from user charges, and not from ‘free revenue’.

At the same time, party polarization correlates positively with population size (r = 0.30), while electoral dominance correlates negatively with population size (r = −0.11).

Borge and Haraldsvik (2009) analyze efficiency in elderly care (c.f. ‘nursing and care in the Appendix). Their output indicators are similar, though not identical, to the one employed here. Using survey data, they do not find that the more efficient municipalities have lower levels of service quality (Borge and Haraldsvik 2009, Table 4).

First, a highly competent and/or hard-working incumbent that provides services efficiently can be reelected despite taking extreme ideological positions. High performance could therefore induce more polarization. A reverse causality effect would cause a positive correlation between polarization and efficiency. Second, persistently high incumbency performance (relative to other municipalities) could be the reason why one party bloc has been reelected in several periods. We should also expect to see a positive correlation between electoral dominance and efficiency. These correlations would go against the selection hypothesis.

The baseline model includes control variables for socialist party majority. The share of representatives from each individual political party has also entered as controls in a supplementary robustness test (not presented). The results did not change much.

Relevant examples are the political situations in Norway and Sweden in the period of Social Democratic hegemony and in Italy in the decades of Christian Democracy dominance. Numerous instances can be found in local elections, including the elections to Norwegian local councils.