Political competition, electoral participation and local fiscal performance

Abstract

Existing literature argues that political competition and electoral participation influence government efficiency. However, empirical evidence on the matter for developing countries is scant and mixed. This paper contributes to the literature by exploring the impact of political competition and electoral participation on the fiscal performance of 1,098 Colombian municipalities during four government periods (2000-2015). Using a fixed effect panel data model, we find a significant positive relationship between political competition and electoral participation and a composite fiscal performance index. To be more precise, our results indicate that municipalities that have a lower concentration of council seats in the hands of few parties (i.e. a lower Herfindahl-Hirschman Index) and higher voter turnout rates tend to perform better. These results are explained by the positive impact of political competition and electoral participation on operating expenses, local revenue generation, investment and savings. Overall, these findings support political accountability theories, which argue that electoral participation and political competition incentivize career-concerned politicians to perform well and to reduce rent-extraction behavior.