The Impact of Unions on Municipal Elections and Urban Fiscal Policies∗

The efficient decentralized provision of public goods requires that special interest groups, such as municipal unions, do not exercise undue influence on the outcome of municipal elections and local fiscal policies. We develop a new political economy model in which a union can endorse one of the candidates in a local election. A politician that prefers an inefficiently large public sector can, therefore, win an election if the union can provide sufficiently strong support during the campaign. We have assembled a unique data set that is based on union endorsements that are published in leading local newspapers. Our empirical analysis focuses on municipal elections in the 150 largest cities in the U.S. between 1990 and 2012. We find that challengers strongly benefit from endorsements in competitive elections. Challengers that receive union endorsements and successfully defeat an incumbent also tend to adopt more union friendly fiscal policies.