Government Spending and Legislative Organization: Quasi-Experimental Evidence from Germany

Authors: Egger, Peter; Koethenbuerger, Marko

Source: American Economic Journal: Applied Economics, Volume 2, Number 4, October 2010 , pp. 200-212(13)

Publisher: American Economic Association

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Abstract:

This paper presents empirical evidence of a positive effect of council size on government spending using a dataset of 2,056 municipalities in the German state of Bavaria over a period of 21 years. We apply a regression discontinuity design to avoid an endogeneity bias. In particular, we exploit discontinuities in the legal rule that relate population size of a municipality in order to council size to identify a causal relationship between council size and public spending, and find a robust positive impact of council size on spending. Moreover, we show that municipalities primarily adjust current expenditure in response to a rise in council size.

Document Type: Research Article

DOI: http://dx.doi.org/10.1257/app.2.4.200

Publication date: October 1, 2010

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