The influence of political fragmentation on public enterprises: Evidence from German municipalities |
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| Affiliation: | 1. ifo Institute, Germany;2. CESifo, Germany;3. ZEW, Germany;4. IZA, Germany;5. University of Mannheim, Germany;1. University of Tübingen, Germany;1. University of Padova, Department of Economics and Management, Italy;2. Politecnico di Torino, Department of Management and Production Engineering, Italy;3. University of Padova, Department of Economics and Management, Higher School of Economics, National Research University, HSE-NRU, Moscow, Italy |
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| Abstract: | This study investigates the influence of politically fragmented municipal councils on the investment behaviour of municipally owned public enterprises. We argue that common public choice theories can also be applied to public enterprises. For our observation period (2002–2014), we use a data set encompassing 8,685 municipally owned enterprises subject to commercial accounting located in 3,237 municipalities drawn from all 13 German federal area states. On average, our results point to a negative effect of fragmentation on investment per capita, supporting a war of attrition or veto player approach. Effects are heterogeneous among different sectors, possibly due to higher visibility to voters. Thus, veto players might actively try to block prestigious and publicly perceivable investment projects to hinder their opponents. Political budget cycles additionally influence this effect for some sectors. However, testing non-linearities reveal that the common-pool hypothesis cannot be completely ruled out. |
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| Keywords: | Municipal enterprises Investments Political economy Interest fragmentation H72 H19 L32 |
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