Brown Bag Seminar: Andras Gregor

The Effects of Electoral Formula on Public Finances Evidence from Hungarian Municipalities

Andras Gregor, UCLouvain CORE

In this paper I provide evidence on effects of plurality and proportional electoral formula on fiscal outcomes. In Hungary different voting regimes are applied to elect the members of local councils: in places where more than 10,000 people live a variant of proportional voting system is used, while below a variant of plurality voting system is used. Not only the electoral formula, but the district magnitude (the number of council members), varies at different population thresholds. The setting allows me to apply a sharp regression discontinuity design to identify the causal effect of the electoral formula on political and fiscal outcomes, and at the same time control for variation in district magnitude. My findings show that the electoral formula directly effects the composition of municipal finances and intensity of political budget cycles, but has no effects on their overall size per capita spending. Interestingly the formula has no effect on political outcomes. Moreover, the district magnitude has not got significant effects on any outcome variables. And finally there is no evidence that either the electoral formula or the district magnitude has an effect on politicians rent-extraction activity (corruption offences). The empirical findings on the composition of public finances are in line with the theoretical predictions of (Persson and Tabellini, 2000) and (Lizzeri and Persico, 2001).

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