Strategic public policy around population thresholds

Abstract

Political economists have long maintained that politicians respond to both (re-)election and financial incentives. This article contributes to the latter literature by analysing whether, when and how local office-holders respond to the economic incentives embedded in exogenously imposed population thresholds leading to an increased number and remuneration of local politicians. Building on insights from the urban economics and public finance literatures, we argue that local politicians may strategically adjust fiscal and housing policies to stimulate in-migration when approaching a population threshold where their remuneration increases. Using data from all 589 Belgian municipalities over the period 1977-2016, our results confirm that approaching important population thresholds causes lower local tax rates and the granting of additional building permits (particularly for apartments). These policy changes occur early in the election cycle and, at least for housing policy, are restricted to incumbent mayors themselves expecting to benefit from crossing the population threshold.

Regression Discontinuity Designs Based on Population Thresholds: Pitfalls and Solutions

“…The paper that is most related to our work in this strand of research is the study byLitschig (2012), which looks at top-down manipulation of population figures in Brazil. In parallel work to ours, two further papers highlight the issue of sorting around population figures in Spain and Belgium (seeForemny, Monseny and Solé Ollé (2015) and DeWitte, Geys and Heirman (2015)). …”

‘Ghost citizens': Using notches to identify manipulation of population-based grants

“…The findings in Litschig (2012) and our own results are similar in the sense that both point to the difficulty of avoiding manipulation of simple populationbased formula grants, but would imply a different solution to the problem: in the case of Brazil the solution seems to be more transparency while in the Spanish case, it is the improvement of the administrative capacity of the central agency. Another paper similar to ours is De Witte and Geys (2015), which studies the incentives introduced by a similar grant in Belgium. 5 They do not find any evidence of over-reporting.…”

Local government size and service level provision. Evidence from conditional non-parametric analysis

“…In the context of public budgeting the pivotal decision makers may be tempted to use their discretionary power to privilege the spendingprograms of a narrow interest group, lobby or firm. A case in point is urban planning and real estate transactions (De Witte et al, 2018).…”