“Political Fragmentation and Government Stability. Evidence from Local Governments in Spain”

with Felipe Carozzi and Luca Repetto

Revised and Resubmitted to the American Economic Journal: Applied Economics

Link: Latest Version (September 2020); CEMFI WP (May 2019); Uppsala University WP (March 2020); CESifo WP (April 2020); CEPR DP 14619 (April 2020)

Blog article: nadaesgratis.es

Abstract:

This paper studies how political fragmentation affects government stability. Using a regression-discontinuity design, we show that each additional party with representation in the local parliament increases the probability that the incumbent government is unseated by 5 percentage points. The entry of an additional party affects stability by increasing both the probability of a single-party majority and the instability of governments when such a majority is not feasible. We interpret our results in light of a bargaining model of coalition formation featuring government instability.