Manager or professional politician? Local fiscal autonomy and the skills of elected officials.

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Date: July 2020
Publisher: Elsevier B.V.
Document Type: Report
Length: 415 words

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Abstract :

Keywords Decentralization; Skills of politicians; Fiscal autonomy Highlights * Following an increase in local fiscal autonomy, rich jurisdictions elect politicians with administrative skills. * Poor jurisdictions elect politicians with political skills. Consequently, voter welfare grows mainly in rich jurisdictions. * We test our predictions using data from Italy and exploiting the decentralization reforms implemented in the '90s. * Our estimates show a differential change in the characteristics of elected officials between rich and poor municipalities * The estimates show that voter welfare improved in rich municipalities. The improvement is due to a selection effect. Abstract We provide a theoretical and empirical assessment of why local fiscal autonomy can affect the skills of elected officials in sub-national governments. We first develop a model of politics with different types of politicians and show that -- following a tax decentralization reform increasing local fiscal autonomy -- politicians with high administrative skills are elected in rich jurisdictions while politicians with high political skills are elected in poor ones. As a result, voter welfare increases only, or mainly, in rich jurisdictions. We then look for empirical support to these predictions by exploiting the decentralization reforms affecting Italian municipalities in the '90s. These reforms introduced both the direct election of the mayor and new autonomous tax tools for municipalities characterized by large differences in their tax bases. Our estimates -- robust to several alternative stories -- emphasize a differential change in elected officials at the municipal level between rich and poor jurisdictions. These findings provide a new explanation for the observed poor performance of local governments largely financed by grants. Author Affiliation: (a) Università Cattolica del Sacro Cuore, Milan, Italy (b) CESifo, Germany (c) Universitat de Barcelona, Institut d'Economia de Barcelona (IEB), Spain (d) Università Cattolica del Sacro Cuore, Rome, Italy * Corresponding author. Department of Economics and Public Finance, Università Cattolica del Sacro Cuore, Largo A. Gemelli 1, I-20123, Milano, Italy. Article History: Received 30 May 2019; Revised 7 February 2020; Accepted 15 February 2020 (footnote)[white star] We wish to thank the editor, two anonymous referees, Fernanda Brollo, Peter Buisseret, Gianmarco Daniele, Philippe de Donder, Mirko Draca, Alessandro Fontana, Vincenzo Galasso, Anke Kessler, Ben Lockwood, Marko Koethenburger, Andrea Mattozzi, Giovanna Messina, Tommaso Nannicini, Giacomo Ponzetto, Francesco Porcelli, Panu Poutvaara, Marzia Romanelli, Paolo Sestito, Francesco Sobbrio, Guido Tabellini, Davide Ticchi, Dave Treisman, Andrea Vindigni, Jingjing Zhang for useful comments on previous drafts of this paper. Usual disclaimers apply. Byline: Massimo Bordignon [massimo.bordignon@unicatt.it] (a,b,*), Matteo Gamalerio [m.gamalerio@ub.edu] (c), Gilberto Turati [gilberto.turati@unicatt.it] (d)

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Gale Document Number: GALE|A626291422