The influence of auditor term length and term limits onUS state general obligation bond ratings

Improving transparency and enabling the principal to hold its agents accountable is a major issue in any principal agent relationship. This paper focuses on the role of public auditors in this task and presents evidence on the impact of auditor term length and term limits on government performance measured by state credit ratings at the US State level. Ifind no clear evidence for the influence of auditor term length, but strong evidence for a positive and significant influence of term limits on state credit ratings. Auditors who face a binding term limit are associated with higher credit rating

Independent and competing agencies: An effective way to control government

Controlling government is a primary focus of the politico-economic literature. Recently, various political institutions have been analyzed from this perspective, most importantly balanced budget rules, fiscal federalism, and direct democracy. However, one type of institution has been neglected so far: elected competitors to the government. Such institutional competition between the government and an independent agency can be found at the Swiss local level, where finance Commissions compete with the government. In some parts of Switzerland, local finance commissions can ex ante criticize government projects and bring alternative policy proposals onto the political agenda, which are then voted on by the citizens. Thus, they become strong competitors to the government. We econometrically investigate this institutional setting by comparing the 26 Swiss cantons. We find the power of the local finance commission to have an economically relevant, statistically significant and robust negative effect on the tax burden and on public expenditure

Governance, bureaucratic rents, and well-being differentials across US states

We analyse the influence of institutional restrictions on bureaucratic rents. As a measure for these rents, we propose subjective well-being differentials between workers in the public administration and workers in other industries. Based on data for the US states, we estimate the extent to which institutional efforts to strengthen bureaucratic accountability affect differences in well-being. We find that well-being differences are smaller in states with high transparency, elected auditors, and legal deficit carryover restrictions. These findings are consistent with limited rent extraction under these institutional conditions. No or weak effects are found for performance audits and regulatory revie

Direct and indirect effects based on difference-in-differences with an application to political preferences following the Vietnam draft lottery

This paper proposes a difference-in-differences approach for disentangling a total treatment effect on some outcome into a direct effect as well as an indirect effect operating through a binary intermediate variable – or mediator – within strata defined upon how the mediator reacts to the treatment. Imposing random treatment assignment along with specific common trend (and further) assumptions identifies the direct effects on the always and never takers, whose mediator is not affected by the treatment, as well as the direct and indirect effects on the compliers, whose mediator reacts to the treatment. We provide an empirical application based on the Vietnam draft lottery, where we analyse the impact of the random draft lottery number on political preferences. The results suggest that a high draft risk due to the lottery leads to a relative increase in mild preferences for the Republican Party, but has no effect on strong preferences for either party or on policy contents. Moreover, the increase in Republican support is mostly driven by the direct effect

Rethinking public auditing institutions: Empirical evidence from Swiss municipalities

In the economic literature various political institutions designed to control the government have been analyzed. However, an important institution has been neglected so far: independent auditing institutions with an extended mandate to analyze the budget draft and individual policy proposals. We argue that auditors with an extended mandate improve transparency and provide essential information on the impact of policy proposals on common pool resources. This leads to less wasteful spending and a more efficient allocation of public resources. We empirically analyze the policy impact of local auditors with an extended audit mandate in Switzerland. Auditors, who can evaluate and criticize policy proposals ex ante to policy decisions, significantly reduce the general tax burden and public expenditures. We find similar results with different datasets. These results are robust to various changes in the econometric specification

Direct and indirect effects based on changes-in-changes

We propose a novel approach for causal mediation analysis based on changes-in- changes assumptions restricting unobserved heterogeneity over time. This allows disentangling the causal effect of a binary treatment on a continuous outcome into an indirect effect operating through a binary intermediate variable (called mediator) and a direct effect running via other causal mechanisms. We identify average and quantile direct and indirect effects for various subgroups under the condition that the outcome is monotonic in the unobserved heterogeneity and that the distribution of the latter does not change over time conditional on the treatment and the mediator. We also provide a simulation study and an empirical application to the Jobs II programme