Democratization and Public Finances: Lessons from the 1870 Municipal Reform in Cities of the Russian Empire

Abstract

This paper examines the effect of democratization on fiscal revenues and expenditures taking advantage of an understudied large-scale natural experiment: the introduction of elected self-government institutions in the cities of the Russian Empire in the 1870s and 1880s. Applying a staggered difference-in-differences design to original city-level panel datasets, I find that the reform had a big positive impact: it increased revenues and expenditures by about 25–50%, enabling an expanded allocation of funds to police, fire protection, education, and healthcare. The introduction of self-governance was less consequential in cities with a greater share of merchants in the population, apparently because they had been able to boost public finances in accordance with their preferences even before the establishment of new representative institutions.