Ideology and Fiscal Policy: Quasi-Experimental Evidence from the German States
49 Pages Posted: 3 Nov 2012
Date Written: October 31, 2012
Is government ideology important for fiscal policy? I study this question with data from all German States over the period 1975-2005. To identify the effect of ideology, I rely on a fuzzy regression discontinuity design. I find that left-wing state governments spend more than state governments with right-wing and mixed ideology. Deficits of left-wing governments are larger than those of right-wing governments but smaller than those of governments with mixed ideology. These results are robust to sensitivity tests.
Keywords: Government ideology, Fiscal policy, Fiscal federalism
JEL Classification: D72, D78, E62, H72
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