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Subnational fiscal policy interdependence: explaining local politicians' fiscal decisions across space and time

Abstract

The aim of this project is to determine whether and how subnational fiscal policy choices are interdependent across space and time. Joining research on political budget cycles and economic policy diffusion, the project develops two alternative arguments to explain subnational fiscal policy interdependence. One argument explains how subnational governments learn which fiscal policy choices are best for maximizing constituent support from their copartisan peers, leading to subnational fiscal policy learning and thus fiscal policy interdependence. The other argument explains how subnational government leaders' efforts to outcompete their copartisan peers to appease higher-level party superiors leads to subnational fiscal policy competition and thus fiscal policy interdependence. To distinguish between these arguments, as well as to demonstrate the presence of subnational fiscal policy interdependence across space and time, the project examines subnational fiscal policy diffusion among subnational governments in Brazil and Mexico using a "most different systems" research design. Quantitative data¬-including yearly municipal, state, and federal level fiscal and debt data (the main dependent variables under consideration) and yearly municipal, state, and federal electoral data (the main independent variables under consideration)-will be used to test for subnational fiscal policy interdependence. Qualitative case studies-informed by government reports and academic publications on subnational fiscal and debt policy as well as first-hand interviews with bureaucrats, politicians, practitioners, and academic experts-will be used to illustrate the logic driving subnational fiscal and debt policy choices. (AU)

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