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We exploit a discontinuity in the rules of Brazilian mayoral elections to investigate whether political competition has a causal impact on fiscal policy choices. In municipalities with fewer than 200,000 voters, mayors are elected under a plurality voting system. In all other municipalities, a runoff election takes place between the top two candidates if neither achieves the majority of votes. Our results suggest that political competition induces more investment and less current expenditures, particularly personnel expenditures. The impact is larger when incumbents can run for re-election, suggesting incentives matter insofar as incumbents can themselves remain in office. [ABSTRACT FROM AUTHOR]