Empirical Essays in Public and Political Economics
Essay I: This paper proposes a novel approach to the issue of size, cost-efficiency and economies of scale by focusing on the break-up of municipalities. Municipal break-ups are an understudied phenomenon that nevertheless has been recurrent not only in parts of eastern Europe, but also in Spain and Sweden. Analyzing seven voluntary break-ups of Swedish municipalities, we estimate the effects of municipal splits on municipal total costs as well as administrative costs. To predict what would have happened had the splits not taken place, we apply the matrix completion method with nuclear norm minimization. Our results do not support the standard view, i.e. that smaller municipalities imply higher per capita costs. Instead, we find that costs increase in some municipalities, are unaffected in others and decrease elsewhere. The findings point to the complex nature of territorial reforms, the difficulty in drawing general conclusions of such, and hence, the perils of expecting them to have uniform outcomes. ; Essay II: I test for the presence of election cycles within the budget composition in Swedish municipalities. I find that local governments increase expenditures that are visible to voters in election years. Other expenditures do not decrease, and as a consequence total spending increases. Budget balance is achieved by an increase in intergovernmental grants. I also find suggestive evidence that municipalities with the same political affiliation as the ruling central government receive more grants and spend more on visible expenditures. ; Essay III: This paper shows that the term length for politicians affects public finances. Specifically, I show that the staggered extension of term lengths for U.S. governors from two to four years decrease yearly expenditures and revenues by 6 percent. Further, I show that this effect comes from stronger re-election incentives to a longer and thus more valuable term. The incentive effect is isolated from the potential effect of worsened candidate selection by exploiting that voters in general both approve longer terms and elect the last two-year term governor in the same election. In addition, I find that longer terms cause republican governors to exert effort to reduce the size of government without decreasing the level of public goods, while democratic governors instead increase the level of public goods without increasing government spending and revenues. My findings highlight the importance of constructing an institutional framework that gives politicians strong incentives to perform.
