BASIC SERVICES 122

(omitted) cantonal influences might affect the analysis.

In Swiss municipalities, democratic decision making might be direct, through town meetings, or representative, through a parliament. The findings of Feld et al. (2003) and Matsusaka (2008) indicate that a direct democracy, compared to a representative democracy, may shift revenue generation from taxes to user charges. They also find that direct democracy causes smaller governments in terms of revenue and spendings. Therefore, revenue generated from user charges (and subsequently administered prices) is differently influ-enced by a direct democracy than other revenue. The main explanation for this observation, according to the authors, is that government revenue that can be justified by a service is accepted by the people and therefore accepted in (direct) votes. Politicians in representative systems are less focused on how revenue is generated, which is quite plausible. Their studies are on a cantonal level, so they are only conditionally comparable to this study analysing munic-ipalities. Pommerehne (1983), on the other hand, stated that municipalities with direct democracy (town meetings) showed lower prices for waste manage-ment services. He pointed out that control mechanics in direct democracies are much stronger, which might cause this difference.

The democratic system is included in the model specification in equation (4.6) by the dummy variable ’Parliament’, indicating whether a municipality has a parliament (1) or town meetings (0). The second variable of interest is the strength of finance commissions, measured by the index ’FinCom’. The finance commission index, originally suggested by Eichenberger and Schelker (2007) and updated by Rühli (2012), describes how strong the mandatory elements financial control of a municipality are. This measure is based on cantonal law. The variable does not capture how efficiently these mandatory elements are actually implemented, but indicates at least its minimal standards, which are defined by cantonal law as a lower threshold. Note that the index takes identical values for every municipality in a canton.

The key institutions in communal financial control are ’Accounts audit’, ’Busi-ness audit’, ’External audit’ and ’Finance commission’. Based on cantonal law, these are either optional, recommended or mandatory. The effects of these institutions is investigated in the second part of this subsection. As mentioned before, the results have to be interpreted very carefully because other effects

at the cantonal level are very likely to be omitted. As seen in section 4.2, price setting varies within and throughout cantons. Suppliers are often present over multiple municipalities, and so similar or identically set prices might end up showing in the estimated coefficients for cantonal variables.

In the basic model specification, in equation (4.6), ’Tax’ is added because of its earlier significance. The specification is again completed by set M, containing dummies for municipality type and language.

log(AP_j) = β₀+ β₁P ar l_j + β₂F inCom_j + β₃log(T ax_j) + β_kM_j + u_j (4.6)

The results are reported in table 4.8. All estimations are again OLS with het-eroscedasticity consistent standard errors. Estimations (1) to (4) are with the API and API_−e. Estimations (1) and (2) are on the complete sample, contain-ing all 324 observations. Estimations (3) and (4) are on the restricted sample, with 281 municipalities, excluding all municipalities with any administered ser-vice price equal to zero. Estimations on single prices are in estimations (5) to (8). Again, all observations with corresponding prices equal to zero are excluded. The Jarque-Bera tests are carried out to observe residual distribu-tions.

The estimation results are shown in table 4.8. Again, as in the previous sec-tion, one variable shows influence, whereas the other does not seem to have any relevance for prices. A p-value below 5% is required for a variable to be considered as significantly different from zero. Direct democracy on a com-munal level, measured by the presence of town meetings and parliaments, does not have significant impact on price levels. The coefficients are estimated to be positive. Therefore municipalities with parliaments do have slightly higher price levels, but not significantly different from municipalities with town meet-ings. The only significant estimated coefficient is for water supply, the most locally organised service. This is also confirmed in further estimations, which are discussed below. Note that the Jarque-Bera tests indicate residual distri-bution problems, and p-values might not be valid. The coefficients for the strength, or more precisely, potential strength, of finance commissions is con-sistently estimated to be negative. In half of the estimations, coefficients are

CHAPTER4.BASICSERVICES124 Table 4.8: Institutional control of administered prices

(1) API (2) API_−e (3) API (4) API_−e (5) EL (6) WM (7) SW (8) WS

Constant 6.214^∗∗∗ 5.342^∗∗∗ 6.499^∗∗∗ 5.735^∗∗∗ 3.857^∗∗∗ 5.239^∗∗∗ 2.714^∗∗∗ 3.833^∗∗∗

(0.214) (0.346) (0.189) (0.281) (0.155) (0.172) (0.412) (0.482)

Parliament 0.012 0.021 0.019 0.032 0.001 −0.009 0.013 0.135^∗

(0.019) (0.037) (0.018) (0.031) (0.016) (0.031) (0.058) (0.058)

FinCom −0.024^∗∗ −0.024 −0.024^∗∗ −0.024 −0.026^∗∗∗ −0.034^∗∗ −0.012 −0.015

(0.008) (0.014) (0.008) (0.013) (0.007) (0.012) (0.023) (0.023)

log(Tax) 0.216^∗∗∗ 0.270^∗∗∗ 0.153^∗∗∗ 0.183^∗∗ 0.166^∗∗∗ −0.092^∗ 0.410^∗∗∗ 0.140

(0.045) (0.073) (0.040) (0.059) (0.032) (0.037) (0.086) (0.102)

Suburban −0.014 −0.026 −0.006 −0.011 −0.002 −0.006 −0.033 0.036

(0.019) (0.033) (0.020) (0.032) (0.016) (0.032) (0.054) (0.058)

High-income 0.083^∗∗ 0.152^∗∗ 0.100^∗∗ 0.178^∗∗ −0.002 −0.041 0.249^∗∗ 0.340^∗∗∗

(0.030) (0.053) (0.030) (0.057) (0.027) (0.046) (0.078) (0.085)

Peri-urban −0.042 −0.063 −0.036 −0.040 −0.028 −0.115 −0.136 0.076

(0.031) (0.059) (0.031) (0.051) (0.028) (0.076) (0.114) (0.085)

Tourist −0.007 −0.068 −0.019 −0.061 0.047 −0.184 0.154 −0.195

(0.050) (0.110) (0.046) (0.070) (0.032) (0.107) (0.147) (0.169)

Industrial 0.028 0.013 0.029 0.011 0.048^∗ 0.006 0.100 −0.042

(0.030) (0.053) (0.031) (0.053) (0.021) (0.058) (0.101) (0.077)

Agronomic −0.007 −0.099 −0.006 −0.105 0.084^∗ −0.136 0.111 −0.298

(0.072) (0.149) (0.065) (0.138) (0.037) (0.087) (0.237) (0.170)

French −0.094^∗∗∗ −0.250^∗∗∗ −0.033 −0.136^∗∗ 0.064^∗∗∗ −0.164^∗ −0.196^∗∗ 0.066

(0.022) (0.042) (0.030) (0.050) (0.017) (0.072) (0.066) (0.066)

Italian −0.087 −0.364^∗∗∗ −0.056 −0.292^∗∗∗ 0.166^∗∗∗ −0.201^∗ −0.678^∗∗∗ −0.062

(0.054) (0.100) (0.036) (0.064) (0.040) (0.100) (0.124) (0.097)

N 324 324 281 281 324 285 324 320

adj. R-squared 0.240 0.260 0.157 0.145 0.256 0.134 0.170 0.093

Jarque-Bera 0.449 9.455^∗∗ 0.938 1.816 4.036 30.0164^∗∗∗ 21.406^∗∗∗ 38.311^∗∗∗

Note: The estimations are on the logarithm of different dependent variables, as indicated in the header: API (administered price index), API_−e (API without electricity), EL (electricity), WM (waste management), SW (sewer water) and WS (water supply). All coefficients are estimated by OLS, and significances are indicated as follows: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05. Heteroscedasticity consistent standard errors (hc3) are reported in parentheses below every estimate. The number of observations (N), adjusted R-squared and Jarque-Bera tests with null hypothesis ’normal residual distribution’ are in the second part of the table.

significant at the 5% level. Remember that the FinCom-index takes values be-tween 0 and 3; see table 4.4. A high index value indicates a potentially strong financial control. Per increased index point, in the estimations (1) to (4) the administered price level is 2.4% lower. For water supply and sewer water ser-vices, prices are lower by 1.2% and 1.5%, respectively, if the index is increased by 1. For waste management and electricity services, the impacts are 3.4%

and 2.6% stronger, respectively, when the index is increased by 1.

Without any further extensive discussion or estimations, municipalities with potentially strong finance commissions tend to have lower service price lev-els. However, the finance commission index (FinCom) is based on cantonal law. Other cantonal effects may have been omitted. The intermediate result should not be overrated, and it must be interpreted carefully. Adding insti-tutional variables does not change the overall estimation performance much.

The adjusted-R squared remains approximately at the same level as in the estimations with tax burden and rent. Instead of five, only four estimations have problematic residual distributions, as indicated by the Jarque-Bera test.

Again, three estimations with the API and API_−e show normally distributed residuals.

To obtain better insight into the relation between administered price levels and individual institutions, the specification is slightly altered. Single institutions replace the ’FinCom’ index to see whether one institution in particular could influence the results. In a second step, regions are added to control for local effects. In a third step, it will be shown that without control for regions or languages (and only topography), the ’FinCom’ index is much more relevant for administered prices. Finally, the model is estimated with cluster robust standard errors.

As previously discussed, the following four institutions are very important el-ements in the financial control: ’Accounts audit’, ’Business audit’, ’External audit’ and ’Finance commission’. The ’FinCom’ index is replaced by four dummies, which take the value 1 if an institution is mandatory in the cor-responding canton, and 0 otherwise. The results, as seen in table A.19 in the appendix, show that two groups can be formed. External and business audit coefficients are, with one exception, always negative and sometimes sig-nificant. Accounts audit and finance commissions have negative and positive