Local Government Fiscal Policy, Social Capital and Electoral Payoff: Evidence across Italian Municipalities

Abstract

Summary Citizens' attitudes and reactions to policymakers' decisions depend on several factors, including informal institutions. The novelty of this paper is to use social capital as a moderator factor to shed light on the relationship between fiscal policies and electoral outcomes. We investigate this relationship using a sample of 6,000 Italian municipalities over the period 2003‐2012 and use a Conditional Logit Matching model comparing incumbents to challengers' characteristics within each election. We find that social capital increases the odds of the re‐election of incumbent mayors who adopted a local fiscal policy more oriented towards capital investment (versus current expenditure) and towards property tax (versus income surcharge). This suggests that social capital encourages governmental functions and public policies improving long‐term economic commitments, institutional transparency, and accountability. It also shows that decentralization works relatively better with social capital.

Social capital, social economy and economic resilience of Italian provinces

“…The choice of the number of social co‐operatives as indicator, rather than that of employees and volunteers, was influenced by the limited availability of data. However, it is widely used in literature to proxy social and relational capital forms (e.g., Batinti et al, 2019; Lo Cascio et al, 2019; Mazzola et al, 2018; Nifo & Vecchione, 2014; Sabatini, 2007; Sabatino, 2019). This is because there is a strand of literature (e.g., Borzaga, 1996; Borzaga & Tortia, 2006; Degli Antoni & Portale, 2011) that considers that social co‐operatives have greater freedom to pursue their social goals than do traditional non‐profit organizations.…”

The political economy of public research, or why some governments commit to research more than others

“…Communities rich with social capital prefer long to short-run political-economic strategies (Andriani and Sabatini, 2015). Social capital is associated with public investment for the implementation of socio-economic and sustainable forward-looking public policies in favor of public safety, public health, public education, and environmental protection (Batinti et al, 2019;Pierce et al, 2016;Schneider, 1987).…”

“…Individuals holding social capital tend to prefer decisions forward-looking oriented (Anand and Poggi, 2018). When this turns into political pressure it encourages forward-looking policy, favoring long-term public investments (Batinti et al, 2019).…”

Transparency, civic capital and political accountability: A virtuous relation?

“…Similarly, Albanese et al (2019), exploring the relationship between civic capital across Italian regions and the electoral reform of 2005, found that the effects of the electoral rules on politicians’ behavior vary according to the level of civic capital characterizing different districts. Finally, Batinti et al (2019) showed that an incumbent mayor who has adopted investment‐oriented and property tax‐oriented fiscal policies is more likely to be rewarded by voters in municipalities characterized by a higher level of civic capital.…”