Fiscal Rules and the Selection of Politicians

• In Event: The Political Economy of Italy

Abstract

Many countries have recently introduced scal rules to constrain governments' fiscal policies and action. Despite the wide adoption, there is little evidence on the
consequences of fiscal rules for the quality of government. I use data from Italian
municipalities to study how fiscal rules affect the selection of politicians. In 1999, the
Italian government applied fiscal rules to all municipalities, and in 2001 it removed them
for municipalities with less than 5000 inhabitants. Using a Difference-in-Discontinuity
(Diff-in-Disc) design, which enables control for an institutionally mandated increase in
the wage paid to politicians at the 5000-inhabitant threshold, I provide the following
empirical evidence: 1) fiscal rules negatively affect the quality of politicians, and in particular their level of education; 2) consistent with the idea that competent individuals
enter politics if they are given enough discretion, the effect is driven by municipalities
with low decits; 3) fiscal rules offset the positive effect of the wage increase on the
selection of politicians.

Author

• Matteo Gamalerio, Institut d'Economia de Barcelona, University of Barcelona