619/2022 Benjamin Lockwood, Francesco Porcelli & James Rockey

This paper uses an instrumental variable approach based on close elections to evaluate the effect of political parties on local fiscal policy in England and Wales over the period 1998-2015. Our main finding is that political control of the council (by Labour, Conservative, or Liberal Democrat parties) has no effect on total current expenditure, the composition of that expenditure, the property tax rate (council tax per band D property) and total council tax revenue. We find the same null results for capital expenditure, debt, and authorized debt limits. Thus, our results confirm the widely expressed belief that centrally imposed constraints on local government fiscal policy (rate-capping, and more recently, compulsory referenda, and the Prudential Code for borrowing) hold local government fiscal policy in a tight grip.