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American Economic Journal: Applied Economics: Vol. 2 No. 4 (October 2010)

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

Article Citation

Egger, Peter, and Marko Koethenbuerger. 2010. "Government Spending and Legislative Organization: Quasi-experimental Evidence from Germany." American Economic Journal: Applied Economics, 2(4): 200-212.

DOI: 10.1257/app.2.4.200

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. (JEL D72, H72, R51)

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Authors

Egger, Peter (ETH Zurich and CESifo)
Koethenbuerger, Marko (U Copenhagen and CESifo)

JEL Classifications

D72: Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
H72: State and Local Budget and Expenditures
R51: Finance in Urban and Rural Economies

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