Chasing votes with the public budget

This paper examines the distribution of public resources by an incumbent seeking re-election. I present a model to explain the behavior of an incumbent redistributing public goods and cash transfers. According to the model, politicians use the government budget as a portfolio for electoral investment and diversify expenditure in order to target different groups of voters at the same time. I construct a unique data set of the promises made by the president of Colombia from 2002 to 2010 to municipalities throughout the country's various regions. The empirical results show some evidence that promises of cash transfers targeted swing voters, promises of public goods simultaneously targeted both core and swing municipalities, while opposition municipalities received few promises of cash transfers and public goods, which is consistent with the prediction of the model.     

Do formula-based intergovernmental transfer mechanisms eliminate politically motivated targeting? Evidence from Ghana

Various countries have adopted formulas for determining intergovernmental transfers as a strategy to limit the role of political considerations in resource allocation. In this paper, we investigate a formula-based system of allocating resources from a central government to local governments to determine whether the political characteristics of recipient areas have any bearing on their allocation. Specifically, we study the sharing of resources of the District Assemblies Common Fund (DACF) in Ghana amongst the country's district governments over the period 1994 to 2005. We find evidence that the mechanism does not eliminate politically motivated targeting of the grants. Per capita DACF grants were higher in districts where vote margins in the previous presidential election were lower, suggesting that swing districts were targeted. We find evidence that DACF formula indicators and their weighting were chosen and amended to produce politically desired patterns of transfers.     

The swing voter's curse with adversarial preferences

We analyze voting behavior in a large electorate in which voters have adversarial state-contingent preferences with incomplete information about the state of the world. We show that one type of voter can suffer from the swing voter's curse à la Feddersen and Pesendorfer [The swing voter's curse, Amer. Econ. Rev. 86 (1996) 408-424], and go on to characterize the symmetric Nash equilibria of this model under different parameter values. We prove that unlike settings with nonadversarial preferences, there are equilibria in which in one state of the world, a minority-preferred candidate almost surely wins the election and thus the election may fail to correctly aggregate information. Indeed, we show that the fraction of the electorate dissatisfied with the result can be as large as .     

The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain

In this paper we test the hypothesis that municipalities aligned with upper-tier grantor governments (i.e., controlled by the same party) will receive more grants than those that are unaligned. We use a rich Spanish database, which provides information on grants received by nearly 900 municipalities during the period 1993-2003 from three different upper-tier governments (i.e., Central, Regional and Upper-local). Since three elections were held at each tier during this period, we have enough within-municipality variation in partisan alignment to provide differences-in-differences estimates of the effects of alignment on the amount of grants coming from each source. Moreover, the fact that a municipality may simultaneously receive grants from aligned and unaligned grantors allows us to use a triple-differences estimator, which consists of estimating the effects of changing alignment status on the change in grants coming from the aligned grantors relative to the change in grants coming from the unaligned ones. The results suggest that partisan alignment has a sizeable positive effect on the amount of grants received by municipalities. For example, with majority governments at the two layers, aligned municipalities receive over 40% more grants than unaligned ones.     

The Effect of Political Alignment on Transfers to Portuguese Municipalities

I investigate if political alignment between central and local governments brings financial benefit to local governments, using financial data from Portuguese municipalities (1992–2005). I use regression discontinuity design to determine the effect of political alignment per se on transfers to municipalities. Municipalities aligned with the central government receive 19% more targetable transfers than unaligned municipalities. I test for electoral motivation of this transfer bias: extra transfers increase the vote share of incumbents in local elections for one of the two Portuguese major parties; however, municipal incumbency does not lead to better results in national elections.     

Does political competition lessen ethnic discrimination? Evidence from Sri Lanka

The impact of political competition on ethnic discrimination remains largely unexplored. To address this gap, this paper explores the relationship between the level of political competition and the probability of receiving government transfers among ethnic minorities in Sri Lanka in the run up to the national elections of 2000. The paper shows that making politicians dependent on the votes of members of ethnic groups other their own can encourage moderation in discriminatory practices towards ethnic minorities. Specifically we find that political competition positively influenced the distribution of government food stamps among Sri Lankan Tamils, who otherwise are less likely to receive food stamps relative to the Sinhalese majority. The negative impact of political competition on discrimination is higher when minorities form part of swing constituencies than when they form part of the base support for political parties. Lessons learnt here suggest that having built-in incentives in the design of the electoral process for intergroup bargaining and cooperation in countries with ethnically heterogeneous societies can be an effective restraint on ethnic discrimination. This is consistent with other research that considers political institutions to be a key lever for making ethnically divided societies more inclusive.     

Party Control of State Government and the Distribution of Public Expenditures*

This paper examines the effects of party control of state governments on the distribution of intergovernmental transfers across counties from 1957 to 1997. We find that the governing parties skew the distribution of funds in favor of areas that provide them with the strongest electoral support. This is borne out in two ways. (i) Counties that traditionally give the highest vote share to the governing party receive larger shares of state transfers to local governments. (ii) When control of the state government changes, the distribution of funds shifts in the direction of the new governing party. We find only weak evidence that parties reward electorally pivotal counties or counties in electorally pivotal legislative districts. Finally, we find that increased spending in a county increases voter turnout in subsequent elections. This suggests that parties have an electoral incentive to skew the distribution of funds to influence future election results, and the mechanism through which this works is “mobilization” rather than “conversion” of voters in a fixed electorate.     

Substituting Distribution for Growth: The Political Logic of Intergovernmental Transfers in the Russian Federation

Given limited resources and economic realities, how do politicians distribute monetary transfers in order to retain office? Previous work has largely focused on two models – a core model of rewarding loyal supporters and a swing model of purchasing the support of easily swayed voters. Empirical results have proven mixed, however. In this article, we argue that these mixed results are due to economic factors, which condition politicians' distributive strategies. In our model, we consider that politician and voters are involved in a repeated game, where past expectations condition future strategy. Current (core) supporters who receive few benefits and perceive themselves worse off than other, less loyal, groups are likely to be less loyal themselves tomorrow. In our model, politicians avoid this by providing their supporters consumption benefits directly, in the form of transfers, or indirectly, via strong economic growth. Where economic growth is good, politicians can distribute less to core supporters, who benefit from the rising economy. Where economic growth is weak, however, politicians make transfers to their core supporters to ensure future loyalty. We test our theory using data on federal transfers from the Russian Federal government to 78 Russian Regions from 2000–2008.     

Distributional consequences of political representation

We investigate, both theoretically and empirically, the effect of the geographic concentration of representatives on the geographic distribution of fiscal transfers. Our theoretical model predicts that more representatives residing in a geographic area leads to higher government funds to that area. Our empirical analysis uses the fact that in Germany, due to Germany׳s electoral rules in state elections, the number of representatives varies across electoral districts. Controlling for various socio-economic, demographic, and political variables and using a variety of estimation methods, we find that districts with a greater number of representatives receive more government funds.     

Transparency and Economic Policy

We provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed through government debt, and the size of the debt is higher in less transparent political systems. The model provides an explanation of fiscal churning; it also predicts that groups whose transfers are less visible to others receive higher transfers, and that imperfect transparency of transfers may lead to underprovision of public goods. From the policy perspective, the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues. We show that the transparency of the political system does not unambiguously improve efficiency: transparency of spending is beneficial, but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending.     

Decentralisation or patronage: What determines government's allocation of development spending in a unitary country? Evidence from Bangladesh

This paper contributes to the decentralisation and distributive politics literature by empirically investigating the determinants of public expenditure at the sub-national level in Bangladesh. We argue that fragmentation in a unitary developing country may not channel higher resources to local areas. Political motives may instead play a significant role in the allocation process. Using panel data methods and a novel dataset on government's district-wise allocation of annual development expenditure in Bangladesh covering the period from 2005 to 2009, the analysis focuses on the impact of local government fragmentation and tests key political distribution models (the core voter hypothesis, the swing voter hypothesis, and the political alignment theory). The results show that local government fragmentation does not have any significant impact on public spending at the district level. However, the core vote share, local elected representative's political alignment with the ruling party, and the raw number of ministers from a district are all significantly associated with higher expenditure allocation. No evidence was found in support of the swing voter hypothesis. Overall, the findings suggest that political motives matter and that the allocation of developing spending is significantly influenced by political patronage. This may be a signficant obstacle to SDGs progress, as development spending may not be governed by resource delivery mechanisms that effectively target the poor.     

Intergovernmental transfers and political competition measured by pivotal probability - Evidence from Hungary

I estimate the effects of political competition on the allocation of intergovernmental transfers to Hungarian municipalities between 1998 and 2006. The intergovernmental transfers were intended to finance schooling, elder care, and administrative needs in municipalities. Rather than use closeness of the dominant blocks' vote share, which is the standard measure of political competition, I instead employ (Myerson, 2000)'s pivotal probabilities, calculated at the municipality level. As a result, the number of voters, in addition to the vote difference, is taken into account when describing political competition at the municipal level. I argue that under mixed-member proportional systems, as well as under proportional systems in general, pivotal probability reflects the political reality better than closeness can. I find evidence that swing municipalities in villages are targeted and, ceteris paribus, that poorer regions receive larger transfer amounts than other areas.     

INFANT INDUSTRY AND POLITICAL ECONOMY OF TRADE PROTECTION

Abstract.  This paper introduces infant-industry considerations in political economy determination of trade protection. I build a model where the government cares about both political contributions and national welfare. A potentially beneficial high-tech industry is not viable in the country whose initial human capital is low. In the political economy equilibrium, we find that the tariff schedule will be V-shaped: it decreases initially to maintain the viability of the industry but increases thereafter as the industry expands and gains political power. We use the model to explain both China's tariff offers in WTO negotiations and GATT/WTO rules regarding developing countries.     

The binary policy model

We introduce a model of electoral competition with office-motivated candidates who are exogenously committed to particular positions on some issues, while they choose positions for the remaining issues. A position is majority-efficient if a candidate cannot make a majority of the electorate better off, given his fixed positions. We characterize existence conditions for majority-efficient positions. The candidates' fixed positions in our framework imply that only some voters are “swing voters,” and we analyze how the distribution of swing voters determines whether candidates choose majority-efficient positions. We also analyze plurality and runoff elections with multiple candidates in our framework.     

Fiscal policy,rent seeking,and growth under electoral uncertainty: theory and evidence from the OECD

Abstract. We construct a general equilibrium model of economic growth and optimally chosen fiscal policy, in which individuals compete with each other for a share of government spending and two political parties alternate in power according to exogenous electoral uncertainty. The main prediction is that uncertainty about remaining in power results in increased fiscal spending, which in turn distorts incentives by pushing individuals away from productive work to rent‐seeking activities; then, distorted incentives hurt growth. This scenario receives empirical support in a dataset of 25 OECD countries over the period 1982–96. In particular, uncertainty about remaining in power leads to larger government shares in GDP, which in turn exert an adverse effect on the ICRG index measuring incentives and this is bad for growth.     

Labour market programmes and the equity-efficiency trade-off

This paper studies optimal labour market policy in a society where differently gifted individuals can invest in training to further increase their labour market productivity and where the government seeks both efficiency and equity. Frictions in the matching process create unemployment and differently skilled workers face different levels of risk of unemployment. We show that in such an environment, training programmes that are targeted at the disadvantaged workers complement passive transfers (UI benefits), unlike general training subsidies. Combining passive subsidies with a training subsidy conditioned on the individual being unemployed (for a period) – the typical Active Labour Market Programme – creates a favourable trade-off between equity and efficiency and this encourages high spending on training.     

Excess payoff dynamics and other well-behaved evolutionary dynamics

We consider a model of evolution in games in which agents occasionally receive opportunities to switch strategies, choosing between them using a probabilistic rule. Both the rate at which revision opportunities arrive and the probabilities with which each strategy is chosen are functions of current normalized payoffs. We call the aggregate dynamics induced by this model excess payoff dynamics. We show that every excess payoff dynamic is well-behaved: regardless of the underlying game, each excess payoff dynamic admits unique solution trajectories that vary continuously with the initial state, identifies rest points with Nash equilibria, and respects a basic payoff monotonicity property. We show how excess payoff dynamics can be used to construct well-behaved modifications of imitative dynamics, and relate them to two other well-behaved dynamics based on projections.     

Taxes, Transfers, and Voter Behavior in U.S. Midterm Elections

The effects of changes in per capita real GDP, real taxes and real government transfer payments on midterm congressional election outcomes during the 1946–2002 period are examined. Voters are found to take all of these, except taxes and transfers at the state and local government levels, into account in casting their ballots. However, the weights they place on each are found not to be the same. Consequently, the common practice of summarizing the economic conditions faced by voters through disposable income seems to be inappropriate. Also, omission of tax and transfer variables from the vote equation, and using vote swing rather than vote share as the dependent variable is found to result in underestimation of the coefficient of per capita GDP growth.     

The formation of networks with transfers among players

We examine the formation of networks among a set of players whose payoffs depend on the structure of the network, when players may bargain by promising or demanding transfer payments when forming links. We vary three aspects of the game: (i) whether players can only make transfers to (and receive transfers from) players to whom they are directly linked, or whether they can also subsidize links that they are not directly involved in, (ii) whether or not transfers relating to a given link can be made contingent on the full resulting network or only on the link itself, and (iii) whether or not players can pay other players to refrain from forming links. We characterize the networks that are supported under these variations and show how each of the above aspects either accounts for a specific type of externality, or deals with the combinatorial nature of network payoffs.     

The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence

We analyze both theoretically and empirically, the effect of aid volatility and its interaction effect with institutional quality on per capita economic growth. Our theoretical model, in which an aid-recipient government, operating in an institutional environment of some given quality (making choices over the distribution of aid), predicts that a negative effect of aid volatility on growth is mitigated by stronger institutional quality. We use panel data covering the period 1984–2004 for 78 countries to test this theoretical prediction. Using Generalised Methods of Moments (GMM) we find the relationship between growth and aid volatility is significantly negative and depends on institutional quality. Our baseline results are robust to various computations of aid volatility and foreign aid, time periods, sub-samples and additional covariates.