The Political Economy of Local Public Finances: Public Policy Evaluation and Gender
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A widespread view in the ‘political budget cycles’ literature is that incumbent politicians seek to influence voters’ perceptions of their competence and/or preferences by using the composition of the fiscal budget as a signalling tool. However, little is known about whether voters actually receive and perceive the signal in that way. To empirically assess the relevance of the signalling channel at the municipal level, we conducted a survey among 2,000 representative German citizens in 2018. Only a small fraction of voters feel well-informed about the fiscal budget signal and use the information it contains to decide whether to vote for the incumbent politician. Persons paying more attention to the signal sent by local politicians live in smaller municipalities, are more satisfied with their economic situation, are more educated, and do not feel that they are being electorally manipulated. Our analysis raises doubt about the relevance of budget composition as a signalling mechanism for voters at the local level.
Does a politician’s sex influence political budget cycles (PBCs)? We answer this question using a sample of Spanish municipalities from the Madrid region for the period 2010−2019. The Madrid region has a homogenous set of budget rules that allows consistently categorising budget expenditure items as either ‘mandatory’ or ‘non-mandatory’ public services. After differentiating between smaller and larger municipalities, gender influence is studied along two dimensions: mayor’s sex and share of women in government. Our findings include, in regard to mandatory spending in smaller municipalities, that gender-balanced governments induce PBCs. In larger municipalities, when the share of women in government is above 60%, electoral spending is increased by up to 10% of an average municipal budget for mandatory spending, and up to 2.2% for non-mandatory. These findings are generally supported in a mixed-gender close election analysis.
Do gender differences matter for politicians’ budgetary behaviour when confronted with an exogenous change in the institutional framework? After the 2013 Spanish municipal reform, municipalities with more than 20,000 inhabitants were no longer responsible for managing the provision of social services. Using a difference-in-differences estimator in a sample of municipalities from the Madrid region for 2010−2019, we compare gender differences in social services spending before and after the reform between municipalities below 20,000 inhabitants (control group) and above 20,000 inhabitants (treatment group). Although social spending was, on average, significantly reduced in the treatment group post-reform, we observe significant differences between municipalities conditional on the gender composition of local governments, i.e. council and mayor. Whereas male-dominated governments cut social expenditure by about 20% of the total budget, gender-balanced and female-dominated governments did not. Moreover, gender-balanced governments combined with female mayors increased social services spending by 40% more than gender-balanced governments combined with male mayors. This finding supports the claim that social spending is, on average, of particular importance to female politicians, as they are willing to bend the law to uphold their interests.
Does budget transparency effectively limit the use of creative accounting to circumvent fiscal rules? Through examining a Spanish reform that limited the obligation to provide regular budget information, I study the effect of relaxing transparency rules on budget forecast errors. After the reform, municipalities with less than 5,000 inhabitants were not obligated to provide quarterly information on cumulative budget execution and forecast deviations. Using a difference-in-differences estimator in a sample of municipalities from this Madrid region between 2010−2019, I compare expenditure and revenue forecast errors between municipalities below 5,000 inhabitants (treatment group) and above 5,000 inhabitants (control group). I observe that reducing the frequency of budget reporting leads to a systematic underestimation of planned expenditures and revenues. Furthermore, most differences are found in pre- and electoral periods, indicating a political forecast cycle. I then combine the introduction of a gender quota with the transparency reform to study gender differences in budget forecast errors, finding that female politicians systematically deviate from initial expenditure projections for electoral purposes.
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This item has been published with the following license: In Copyright