Working paper

Economía Política

Peter Egger, Marko Koethenbuerger, Michael Smart

2010/44: Electoral rules and incentive effects of fiscal transfers: evidence from Germany

The impact electoral rules and fiscal equalization programs have for local public finance are separately analyzed in the literature. This paper empirically analyzes whether legislator elected under different rules respond differently to changes in fiscal incentives. Using a reform of the electoral rule and the equalization system as a natural experiment, we find that municipalities which elect legislators under proportional rule react less strongly to changes in fiscal incentives.