The Effect of Left-Wing Party Control on Economic Outcomes

Sammanfattning: A common belief is that left-wing parties tend to use their influence to expand the public sector by increasing taxes – but is this belief supported by data? This study aims to find the causal effect of having left-wing majority and left-wing rule on a set of economic and policy outcomes by using panel data of Swedish local governments between 1995 and 2018. A regression discontinuity design is applied to exploit the discontinuous party control change at 50 percent of the vote share making left-wing majority as good as randomly assigned to observations close to the threshold. The findings suggest that left-wing party control has a negative effect on income inequality and intergovernmental grants and a positive effect on employment and income tax rate where one part of the employment increase stems from public sector expansion.