Länder Spending Priorities and Regional Variation. By: Niccole M. Pamphilis and Charlie Jeffery

Transcription

1 Länder Spending Priorities and Regional Variation By: Niccole M. Pamphilis and Charlie Jeffery ABSTRACT This paper explores the variation in government spending priorities across the sixteen German Länder. A scaling analysis of eight different policy domains; including areas such as education, social protection, and economic development reveals that the Länder do have different spending patterns. The observed variation, which is found both before and after federal reforms; granting greater policy discretion to the Länder, is at odds with normative beliefs in the German context of uniform policy actions. Instead of observing uniformity in policy outputs at the regional level, the paper demonstrates that the institutional framework, capacity of regional governments, and preferences held by policy makers are associated with policy divergence.

2 INTRODUCTION In 2006 and 2009 Germany attempted to disentangle the policy responsibilities between the federal and Länder governments. The 2006 federal reforms focused on clarifying policy responsibilities, while the 2009 reforms centred on the fiscal relationship between the federal and Länder governments. Increasing the discretion of Länder governments however resulted in concern over whether this would induce states to cut corners to save money and attract business with lower standards or provide a better standard of living through policy learning (Turner and Rowe 2013). While it will require a few more years before ample data is available to evaluate how policy outcomes have changed following federal reforms it is possible to analyse how government behaviours have or have not changed by examining government outputs in the form of expenditures. Specifically we ask, have Länder governments spending priorities diverged following federal reforms? Using expenditure data on eight policy domains we are able to examine government spending behaviours. The results of a spatial proximity model demonstrate that Länder governments spending patterns varied to a great extent both prior to and following federal reforms. Instead, current levels of regional divergence can be attributed to difference in the resources the Länder governments have on hand to address problems, preferences of incumbent government officials, and the political institutions surrounding decision makers. BACKGROUND The uniformity paradigm for policy decisions across the German Länder has been in place for the greater part of the last 60 years (Wheare 1953; Hesse 1962; Scharpf 1976) and has continually found reaffirmation (Scharpf 2008; Strum 2010). This expectation for uniformity has also manifest itself in the public. When polled for the Citizenship after the Nation-State (CANS) survey the majority of German citizens felt that uniform outcomes across the regions was preferred to regional variation (Table 1) across a range of policy items.

3 This finding suggests that while the Länder have increased their authority to make decisions regarding policy, the public still prefers a coordinated system to achieve equal outcomes across the state. Following the federal reforms that took place the persistence of the uniformity policy paradigm continues to find support (Burkhart 2008; Scheller and Schmid 2008; Scharpf 2009). However, the idea of policy uniformity or convergence across the Länder is at odds with the continued and increasing research that finds divergence and variation to be prevalent across the Länder (Mintzel 1977; Schmidt 1980; Benz 1985; Schmid 1990; Götz 1992; Jeffery 1999; Sturm 1999a; Hildebrandt and Wolf 2008; Turner 2011). This line of research suggests that the convergence over policy decisions may not have been as strong as previously implied. If this is the case, federal reforms may have not altered the actual degree of policy variation that already existed, or perhaps increased the level of divergence present. DATA AND METHODOLOGY The first step in examining whether or not the Länder have seen greater divergence as a result of the federal reforms is to find a comparable measure over time. In order to do this expenditure data is used to examine the level of variation prior to and after reforms. The comparison is made by examining spending over a range of policy areas simultaneously in order to see how the mix of spending patterns changed. Data In order to examine the spending patterns for the sixteen Länder, expenditure data was acquired from the Federal Statistical Office from 1995 through 2010 using the annual Finance and Taxes reports. Expenditures were available for seventy different policy items. To produce an analysis comparable to prior work done on the American states (Jacoby and Schneider 2009) and democratic countries (Pamphilis 2012) the seventy policy items were condensed into eight policy domains. The eight policy domains attempted to mirror the 2

4 coding used by the Organization for Economic Co-operation and Development (OECD) Classification of Functions and Goods coding scheme. The resulting nine policy domains included: transportation; public order and safety; education; government operations; social protection; economic development; community development; and culture. After collapsing the spending items into more general policy domains the expenditures were converted into the proportion of total spending for the year allocated to that particular policy area. The proportion of total spending was used in order to examine how the different Länder governments actually divided up the resources on hand. The raw expenditures makes comparisons between rich and poor Länder more difficult as abilities to spend vary. Furthermore, the use of spending as a portion of GDP or other measures of wealth examine the variation in ability to spend/ generosity of the Länder governments versus priorities. Additionally, the use of the proportions of spending versus GDP can mask changes in spending; for example when the level of spending on policy domains does not vary, but the ability to spend does. This situations creates the illusion of increases or decreases in the proportion of spending when none actually occurred. Approach In order to compare government spending patterns over a range of domains simultaneously across the Länder over time, we use a spatial proximity model, called a unidimensional, metric, least-squares unfolding (Poole 1984; Jacoby and Schneider 2009). The spatial proximity model produces two sets of information. First, the results reveal what policy domains group together, in other words, what policy domains receive similar levels of spending or see increases and decreases in the proportion of spending received in tandem. The second set of results reveals what spending priorities each Länder have, i.e., what policy domains receive the largest proportion of spending or least. Each Länder is assigned a value 3

5 for each year of spending, which provides the ability to track spending changes not only across the Länder but within each Land over time. Based on the results, the closer a Land point is to a policy domain or cluster of policy domains, the larger the proportion of spending by that Land on that policy domain(s). The larger the distance (or further away) a Land spending point for a given year is, the smaller the proportion of total spending a Land spent on that policy domain(s). If government spending was uniform across the Länder prior to federal reforms, embracing the uniformity paradigm of German Federalism, then each Land point should be similarly located for each year prior to reforms; indicating similar proportions of spending across each policy domain in a given year for all sixteen Länder. Expectations based on preferences from policy uniformity would suggest that even after federal reforms there should be similar levels of spending patterns across the Länder, exemplified by similar spending priorities for each Land. However, if the Länder have embraced a federal system and have utilized the ability to set and deviate in policy actions, each Länder would be expected to have varying spending priorities over the years, which may have been heightened by the federal reforms. An increased spread of spending priorities after reforms, which would denote a greater range of spending patterns across the policy domains, would support the case for divergence over time. RESULTS The results of the unfolding analysis provide insight into both the similarities between the Länder governments in terms of convergence in how spending is divided between sets of policy domains and divergence regarding how each Land chooses to allocate scare resources between policy domains. Policy Domains In terms of the eight policy domains examined the unfolding suggests that there are similarities in how the policy domains are grouped together, which implies a convergence in 4

6 views on what the policy domains are providing and to whom. The results show that the policy domains group into two sets (Figure 1). On the left are policy domains that target particular groups within Germany as a whole, and can be argued to be particularized policy domains; this includes culture, community development, government operations and social protection. On the right are policy domains that appear to benefit broader populations throughout Germany as a whole and can be argued to be collective goods. 1 The particularized policy domains contain spending on items that are intended to be utilized or benefit particular sets of individuals in society. Spending on culture includes items that are intended to primarily benefit individuals within a given Länder, such as sports and recreational facilities and theatres. Furthermore, these items are not used by everyone within a Länder, but primarily those with are particular interest in sports or the arts. Community development focuses on aspects of urban development, regional planning, and environmental conservation, improvements in these areas will primarily provide benefits to individuals working and living within these areas; but offer little direct benefit to the general population. Government operations includes spending on items for day-to-day functioning of the bureaucracy including government employee salaries. The final policy domain that offers particularized benefits is social protection. While a number of items within this domain may be available to German citizens at large, only individuals meeting particular criteria receive direct benefits at any given time; this includes items such as social security, family and social assistance, youth services, and day facilities for children. The final set of four policy domains provide direct benefits to larger portions of the German population and include education, public order and safety, transportation, and economic development. Germany has a compulsory primary education system, which 1 The terms particularized benefits and collective goods are used based on the established language presented by Jacoby and Schneider (2001; 2009) who first applied this approached to government spending patterns in the American states. The results for the American states demonstrated a similar divide in policy domains that benefited particular groups and the collective society in more general terms. 5

7 implies that the general population will at some point directly benefit from spending on education. 2 Public order and safety include a number of items that increase the safety for the general population including police, courts, and prisons. Transportation spending includes repairs and maintenance of motorways, waterways, and railways. The final collective good domain include economic development, improvements seen in this area would provide direct benefits to both communities and Germany as a whole with increases in resources to (re- )allocate and spend. This divide in policy domains is able to capture and express 78.68% of the variation in spending priorities in the sixteen Länder during the time period examined. The ability of this grouping to collectively express the spending patterns of all sixteen Länder over sixteen years suggests a similar approach to viewing who is benefiting/what is being provided. However, the convergence in what policy areas provide does not imply a similar provisions of goods and services. Länder Spending Priorities If the sixteen Länder share similar views on policy priorities or how to respond to policy issues, it is expected that there will be similar values for spending priorities. Similar scores would indicate similar percentages of expenditures allocated across the eight policy domains. In Figure 2 this would be observed with overlapping ranges for the boxplots or in an extreme case of convergence, boxes that were in the same location for each Land, implying that while there might be variation from year-to-year, spending across the Länder in a given year was identical. Looking at the distribution of spending priorities (Figure 2) from reveals both a range of variation in spending between the Länder and within each Land. Based on 2 Unlike social protection where individuals may not make it to retirement, may not have children and utilized family and child care benefits. 6

8 the unfolding analysis, Länder with lower spending priority scores spend more on the particularized policy domains relative to collective goods. Länder with higher spending priority scores spent a larger proportion, in a given year, on collective goods than particularized benefits. We see a range in spending priorities of roughly 11 percentage points, this is a substantial shift in total spending for a regional government from one type of policies to the other. Furthermore, the spending within each Land varies from year to year. Overtime Saarland has re-allocated spending from particularized benefits to collective goods with a change almost four percentage points which is equivalent to approximately 142 million Euros in its 2010 expenditures. While the distribution of spending priorities between the Länder demonstrates differing expenditures it does not reveal how these difference have changed over time. Figure 3 shows the variation in spending priorities by year and can offer a look into whether or not there was greater convergence in spending priorities prior to federal reforms or greater divergence after reforms in 2006 and/or If there were similar spending patterns prior to federal reform there would be less variation in spending patterns scores within a given year. Increased variation or diverging spending patterns after federal reforms would produce greater variation and a wider spread of spending priority scores. The results of the unfolding by year (Figure 3) suggest that cluster of the middle 50% of spending priority scores was smaller from than in later years, though the range of spending scores has always been relatively substantial at eight percentage points of total spending each year. Also, there was a lack of statistical significance at the 0.05% level for difference in the variance over time. Therefore while there is variation in the spending priorities between the Länder its existence both before and after reforms indicates that the diverging spending priorities in not a consequence of federal reforms. This begs the question, what explains diverging spending patterns between the Länder? 7

9 Sources of Variation There are typically three general factors that are associated with policy decisions, namely the socio-economic climate (Huber and Stephens 1993, 2001, 2003; Crepaz, 1998; Milesi-Ferretti et al. 2002; Bräuninger 2005; Iversen and Soskice 2006; Shelton 2007; Brooks and Manza 2007), political preferences (Garand 1985; Hofferbert and Budge 1992; Huber and Stephens 1993, 2000; Klingemann et al. 1994; Bräuninger 2005; Breunig 2006), and political institutions (Tsebelis 1995, 2000; Cox and McCubbins 2001; Iversen and Soskice 2006). Each of these factors have been found to push government spending and policy actions towards decisions that either favour particular groups within the population (particularized benefits) or the general population (collective goods). Regarding the socio-economic climate, the demographic composition of the populous and the resources a government has at its disposal alter the types of goods and services it needs to/ and is capable of providing. Wealthier governments have more resources to allocate and are typically suggested to be in a position to provide more for particular groups within the society without depriving the general population of items they require (Huber and Stephens 1993, 2001, 2003; Crepaz, 1998; Milesi-Ferretti et al. 2002; Bräuninger 2005; Iversen and Soskice 2006; Shelton 2007; Brooks and Manza 2007). For reasons of parsimony the model run in Table 2 only includes one socio-economic variable Real Gross Domestic Product (GDP). Prior research results in the expectation that richer Länder will have a greater spending priority for particularized benefits, with additional resources on hand to meet the needs of different groups in the population. This would be reflected by a negative coefficient for real GDP implying that greater wealth is associated with states with spending priorities that favour particularized benefits. Regarding preferences, democratic systems carry the expectation that governments actions reflect the will of the citizens that elected them into office. Citizens expectations can 8

10 be reflected by the political parties elected into office. Each party runs with a particular platform of policy packages they would attempt to fulfil if elected into office (Garand 1985; Hofferbert and Budge 1992; Huber and Stephens 1993, 2000; Klingemann et al. 1994; Bräuninger 2005; Breunig 2006). Therefore, who citizens elect should mirror their preference for policy actions. Parties on the left are typically associated with policy decisions that favour particular groups in society including the elderly or the less well-off. In Table 2, citizens preferences are summarized using the proportion of seats held by Leftist parties in each Land. Expectations are for larger proportions of seats held by the left to be associated with greater spending on particularized benefits (i.e., a negative coefficient associated with larger spending on particularized benefits relative to collective goods). The final factor examined in Table 2 are the political institutions in place in each Länder captured by the number of institutional constraints present. The number of constraints present in each Land (also referred to in the literature as veto players or veto points) mitigates the challenges governments face when making decisions (Tsebelis 1995; Huber and Stephens 1993, 2001, 2003; Cox and McCubbins 2001; Immergut 1994, 2010; Brooks and Manza 2007). A greater number of constraints is typically associated with greater attention to particularized benefit areas, due to more constraints introducing more policy actors with preferences over outcomes that need to be accommodate to reach agreement. 3 Two dummy variables were include to track changes that may have resulted from the federal reforms in 2006 and While the variance or the level of divergence in spending patterns did not change as a consequence of either reform, we do find that there was a statistically significant shift in spending priorities following the 2006 reforms. Years after 3 For details on how the institutional constraint variable was created see Jeffery et al. (2014). The scale ranges from 0 to 5, zero indicating there are no constraints present in a Länder in a given year and 5 indicating that the maximum number of institutional constraints are present in a Länder. 9

11 2006 saw Länder governments spending more on particularized benefits that target particular groups within their communities. However, the years following the 2009 federal reforms do not show a statistically meaningful shift in average spending patterns. 4 The results in Table 2 reveal that the three variables examined are capable of capturing and explaining 61% of the variance present across the Länder spending priorities. Earlier the examination of government spending priorities revealed that divergence was not a product of federal reforms, and that while public opinion may allude towards a desirability for uniformity of government actions, variation in resources on hand, officials in office, and constraints in the decision making process, limit state-wide convergence. CONCLUSION Federal reforms were undertaken in an attempt to clarify what level of government was accountable for different policy decisions. While it may have been believed that the entangled policy roles between the federal and Länder governments limited deviation, an examination of government spending patterns before and after federal reforms reveals that this was not the situation. Instead of converging spending behaviours prior to reforms due to limited options and independent choice, Länder governments revealed diverging preferences and spending decisions. Furthermore, the level of variation did not increase after reforms in 2006 or We find then, that instead of greater policy discretion increasing the range of policy decisions taken (measured by government spending across policy domains), that variation in resources on hand to fund government policies, what the public wants, and the number of actors involved in the decision making process result in diverging policy outputs at the regional level. 4 The lack of statistically significant coefficient may be a result of only two years (2009 and 2010) available for the analysis. 10

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15 Figure 1: Policy Domain Groupings Culture Community Development Government Operations Social Protection Education Public Order and Safety Transportation Economic Development Policy Domain Groupings

16 Figure 2: Distribution of Spending Priorities by Länder from Berlin Hamburg Bremen Rheinland-Pfalz. Schleswing-Holstein Saarland Niedersachsen Sachsen-Anhalt Mecklenburg-Vorp Thüringen Brandenburg Sachsen Hessen Bayern Nordrhein-Westfalen Baden-Württemberg Spending Priorities

17 Figure 3: Distribution of Spending Priorities by Year Spending Priorities

18 Table 1: Citizens Preferences for Policy Uniformity Total Germany Lower Saxony Thuringia Bavaria Unemployment Benefits State Level Uniformity % 83.22% 81.31% 91.67% 76.42% Regional Matter % 16.78% 18.69% 8.33% 23.58% Higher Education Tuition Fees State Level Uniformity % 83.53% 85.47% 87.51% 77.57% Regional Matter % 16.47% 14.53% 12.49% 22.43% Paying for Elderly Care State Level Uniformity % 89.99% 90.58% 93.46% 85.81% Regional Matter % 10.01% 9.42% 6.54% 14.19% Punishment of Young Offenders State Level Uniformity % 88.86% 89.34% 92.59% 84.56% Regional Matter % 11.14% 10.66% 7.41% 15.44%

19 Table 2: Regression Results for Länder Spending Priorities Coefficient P-value (Standard Error) Real GDP 7.96e (4.39e-07) Leftists Parties (0.011) Institutional Constraints (0.074) (0.207) (0.285) R Adj. R N 256