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The effect of legislature size on public spending: evidence from a regression discontinuity design

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Abstract

What is the effect of legislature size on public spending? An answer to this question is provided by Weingast et al. (J Polit Econ 89(4):642–664, 1981), whose “law of 1/n” posits that an increase in the number of elected representatives always leads to an increase in public spending. Because elected politicians regard the tax base as a common pool from which they can finance specific projects for their constituencies, and these specific constituencies internalize the full benefits of the projects, but only bear a fraction of the costs (projects are financed from the common tax base), fiscal inefficiency will increase with the number of representatives. In this paper, I test the validity of the “law of 1/n” using a dataset of 9325 German municipalities between 2008 and 2010. Through the application of a regression discontinuity design, many of the methodological pitfalls of previous studies can be avoided and a valid estimation of the causal effect of legislature size on public spending for German municipalities can be determined. The results do not corroborate the positive findings of previous studies, which generally supported the implications of the “law of 1/n”. For the years 2008–2010, I find a negative effect of legislature size on public spending in German municipal councils.

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Notes

  1. Bavaria is one of the 16 German Länder (comparable to the US states).

  2. For a detailed introduction to regression discontinuity designs, see Lee and Lemieux (2010), Imbens and Lemieux (2008a), Gelman and Hill (2007), Shadish et al. (2002) and Trochim (1984).

  3. The city states do not have separate municipal councils that are comparable to the local parliaments in other German Länder. Mecklenburg-Vorpommern and Lower Saxony collect data on public expenditures only for the counties, but not for individual municipalities.

  4. The datasets analyzed during the current study are available from the author on reasonable request.

  5. The results are not sensitive to the choice of different kernels (Epanechnikov, rectangle kernel).

  6. Eggers et al. (2017) test the no-sorting assumption for municipalities in Germany, Italy and France. The authors find weak evidence of sorting in Germany which, however, is by far less severe than in Italy or France. Deviating from the present analysis, Eggers et al. (2017) use data for the years 1998-2007 and analyze population thresholds at which either the council size or the mayor’s salary changes.

  7. This test can be implemented in Stata 14 with the rddensity-command.

  8. Related to this argument, McCormick and Tollison (1981, p. 33ff.) show that legislature size also has an effect on the rate of return that interests groups can gain through lobbying activities in the legislative arena. The authors argue that the influence of each individual legislator on the parliamentary decision-making process will diminish if legislature size increases. Thus, although it becomes cheaper for interests groups to buy individual votes in larger legislatures, rents for interests groups are higher in smaller legislatures.

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Acknowledgements

I gratefully acknowledge helpful comments and suggestions by Matt Schoene, Peter Selb, Susumu Shikano, Ulrich Sieberer, Sophia Wallace, Geoffrey Wallace, the journal’s editors, two anonymous referees as well as participants at seminars in Konstanz and Rutgers. All errors and shortcomings are my own.

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  1. University of Bamberg, Feldkirchenstrasse 21, 96052, Bamberg, Germany

    Daniel Höhmann

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Appendix

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See Table 5.

Table 5 Local council size and other institutional changes as a function of population size in the German Länder
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Höhmann, D. The effect of legislature size on public spending: evidence from a regression discontinuity design. Public Choice 173, 345–367 (2017). https://doi.org/10.1007/s11127-017-0484-2

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