Per Pettersson-Lidbom

Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach

A long-standing issue in political economics is whether party control makes a difference in determining fiscal and economics policies. This question is very difficult to answer empirically since parties are not randomly selected to govern political entities. This paper uses a regression-discontinuity design, i.e., party control changes discontinuously at 50 percent of the vote share, which can produce near experimental causal estimates of the effect of party control on economic outcomes. The method is applied to a large panel data set from Swedish local governments with a number of attractive features. The results show that there is an economically significant party effect: left-wing governments spend and tax 2-3 percent more than right-wing governments. Left-wing governments also have 7 percent lower unemployment rates, which is partly due to that left-wing governments employ 4 percent more workers than right-wing governments.

An Empirical Investigation of the Strategic Use of Debt

The paper examines the accumulation of debt by Swedish local governments. I find that right‐wing governments accumulate more debt when facing a higher probability of defeat, whereas the opposite occurs for left‐wing governments. These effects are sizable: a right‐wing government increases its level of debt by 15 percent, whereas a left‐wing government decreases its debt by 11 percent if they are both certain of being replaced as compared to when they are certain of remaining in office. The results are consistent with the predictions from a strategic debt model developed by Persson and Svensson.

Democracy, Redistribution, and Political Participation: Evidence From Sweden 1919–1938

In this paper we empirically analyze how different forms of democracy affect redistributive spending programs, the size of government and political participation. Specifically, we compare a representative democracy with direct democracy, i.e., town-meeting, using a very large data set on Swedish local government for the period 1919-1950. Due to the Swedish Local Government Act, we can implement two different design-based strategies: a regression-discontinuity design and a nonparametric instrumental variables approach. Our results indicate that going from a direct democracy to a representative system dramatically increases political participation, redistributive spending, and the size of government. The estimated effects on public spending to the poor (poverty relief, child welfare and basic public education) are on the order of 35-70 percent while the effect on political participation is between 150-200 percent. We argue that these results most likely reflect that direct democracy is more prone to capture by (rich) local elites than representative democracy. We present further evidence that supports the theoretical framework developed by Acemoglu and Robinson (2006, 2008) based on the persistence of de facto political power.

Temporary Disability Insurance and Labor Supply: Evidence from a Natural Experiment

Most developed countries have compulsory insurance programs for temporary disability, that is, cash benefits for non-work-related sickness. Despite the economic significance of these programs, little is known about their effects on work absenteeism or labor supply. We exploit a policy reform that consisted of the abolishment of a waiting day together with an increase of cash benefits for short sick leaves. We find that the total number of days of sickness absence was reduced by the reform, which is likely due to the fact that the abolishment of the waiting period made it less costly for workers to be absent for short periods.

Revisiting the Relationship between Ethnic Diversity and Preferences for Redistribution: Comment

In this paper, we return to the question raised in Dahlberg et al. (2012) concerning a causal relationship between ethnic diversity and preferences for redistribution. A re-analysis of their study indicates that results are based on an endogenous instrument and severe sample attrition bias. Correcting for either of these two problems reveals that there is no relationship between ethnic diversity and preferences for redistribution. More generally, we provide results that put into question the conventional description of the Swedish refugee placement policy.

Testing Political Agency Models

This paper tests for political agency effects, that is, whether governments that were ex post re-elected performed better than those who were replaced, and whether re-elected governments performed better than newly elected ones. As a testing ground, I use Swedish local governments which offer a number of attractive features. I find strong evidence for political agency effects.