Essays on empirical political economics

For decades the interest in the interaction between political decision-making and economics has not declined, and empirical analysis on this topic has gradually begun to catch up with theoretical developments. In this doctoral thesis, I contribute to these empirical exercises by testing different theoretical predictions using Hungarian municipal-level data. In Chapter 2, I test if tighter elections among political parties increase targeted transfers from the central government to swing and/or poor municipalities. My main contributions are applying a new measure of political competition, pivotal probability, and demonstrating that this measure captures the effect of competition while more common measures, such as closeness of vote share among dominant political blocks, do not. In Chapter 3, I test whether or not a mayor's alignment to Hungary’s governing party influences the expenditure and revenue structure of that mayor's own municipality. The main contribution lies in identifying political alignment in a novel way and showing that not the alignment in itself, but its strength, influences local public finances. In Chapter 4, I provide evidence of the effects of plurality and proportional electoral formulas on local fiscal outcomes. My contribution shows that the electoral formula applied to elect the local council indeed influences the composition, but not the overall per capita municipal spending.