Essays in Political Economics and Public Finance

Sammanfattning: This thesis consists of four self-contained essays.Essay 1: This paper first extends a recently developed nonparametric approach to estimate labor supply (Blomquist and Newey 2002) to handle the case when there are individuals that do not work. The extension makes it possible to sort out responses on the participation and hour margins. The method is used to estimate the labor supply of married women in Sweden. These estimates are then, together with estimates for married men found in other papers, used to evaluate the earned income tax credit program introduced in Sweden in 2007 with respect to married couples through simulations. I find that the reform increases labor supply with 3.6 percent and gross labor income with 3.1 percent. The cost is a net revenue loss of 0.5 percent for the government.Essay 2: This paper investigates the effects of political representation on electoral outcome at the party level in proportional election systems. There are two notions of representation: to hold seats and to belong to the ruling coalition. I refer to the effect of the former as the incumbency effect and the effect of the latter as the effect of ruling. The discontinuous variation in the number of seats and participation in a ruling coalition is used to identify causal effects. I find that incumbency determines the distribution of 12 percent of the votes, which is similar to the advantage found in majoritarian systems. Further, I find no effects of ruling, contrary to the commonly found cost of ruling in proportional systems.Essay 3: This paper first models how local government politicians lobby to raise intergovernmental grants and identifies an effect of council size on grants received. This relationship is then studied empirically using the distribution of intergovernmental grants to Swedish local governments. A regression-discontinuity design that exploits a council size law is used to isolate exogenous variation in council size. I find a large negative effect of council size on grants received. This pattern provides indirect evidence for the occurrence of lobbying. The effect could be explained by free-riding incentives in lobbying effort contribution caused by a collective action problem in grant-raising among local government politicians.Essay 4 (co-authored with Henrik Jordahl): This paper uses the Swedish municipal amalgamation reform of 1952 to study the common pool problem in political decision making. The anticipated amalgams are common pools, and we investigate if local governments free-ride on their amalgamation partners by increasing debt prior to the reform. We find that municipalities that merged in 1952 increased their per capita debt substantially between 1948 and 1952 when the reform could be anticipated with a high degree of certainty. The increase amounted to two thirds of new debt issued or two percent of total revenue in the merged municipalities. But free-riding did not increase with common pool size contrary to the prediction of the “law of 1/n”.