BICEPS/SSE Riga Research Seminar: Ideology, divided governments, and fiscal policy

Abstract: We study how preferences for redistribution and political alignment affect fiscal policy. For the purpose, we leverage the over-time variation in the incentives to tax resulting from an exogenous reduction in the default tax multiplier for local income taxation in Portugal. Findings show that preferences for redistribution affect post-reform income taxation. Right-leaning mayors reduce local income taxation when compared to left-leaning mayors. This result is strongest when the executive and legislative branches of the municipalities share the same ideology. In the presence of divided governments, we obtain intermediate levels of local income taxation.  Results are in line with divided governments having a moderation effect on fiscal policy.

Mariana Lopes da Fonseca's research lies within the fields of public economics and political economy. In particular, she leverages institutional changes to identify the economic and political determinants of local government policy decisions. Since August 2019, she is Assistant Professor for Economic Policy at the University of St. Gallen. Previously, she held a Senior Research Fellow position at the Max-Planck Institute for Tax Law and Public Finance.