Do Party Ties Increase Transfer Receipts in Cooperative Federalism? - Evidence from Germany

45 Pages Posted: 2 Oct 2020

See all articles by Yannick Bury

Yannick Bury

Walter Eucken Institute

Lars P. Feld

affiliation not provided to SSRN

Ekkehard A. Koehler

University of Siegen - Department of Economics; Walter Eucken Institute; University of Freiburg - College of Economics and Behavioral Sciences

Date Written: 2020

Abstract

Cooperative fiscal federalism needs a multi-level consent to decide on the allocation of intergovernmental transfers. We study how parliamentary representation of municipalities on the federal level influences the allocation of federal transfers to municipal governments under this type of federalism. Using a regression discontinuity design in close electoral races, we find that a directly elected member of the federal parliament, who belongs to the party that leads the federal government, induces higher infrastructure transfers from the federal government to a local jurisdiction. However, our results show that this effect only unfolds, if the parliamentarian’s party is simultaneously leading the state government. Moreover, we identify party competition on the local level as motive behind the strategic use of federal funds. Thus, while supporting the swing voter hypothesis, our results suggest that federalism inherently entails restrictions for misusing intergovernmental transfers for political reasons.

Keywords: fiscal federalism, partisan alignment, vertical transfers

JEL Classification: H710, H720, H770, E620

Suggested Citation

Bury, Yannick and Feld, Lars P. and Koehler, Ekkehard A., Do Party Ties Increase Transfer Receipts in Cooperative Federalism? - Evidence from Germany (2020). CESifo Working Paper No. 8580, Available at SSRN: https://ssrn.com/abstract=3703458 or http://dx.doi.org/10.2139/ssrn.3703458

Yannick Bury (Contact Author)

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

Lars P. Feld

affiliation not provided to SSRN

No Address Available

Ekkehard A. Koehler

University of Siegen - Department of Economics ( email )

Department of Economics
Hoelderlinstr. 3
Siegen, 57068
Germany

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg, 79100
Germany

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany

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