Political alignment and intergovernmental transfers in parliamentary systems: evidence from Germany
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Combining local council election data with fiscal data on grant allocations in a German state, we study partisan favoritism in the allocation of intergovernmental transfers within a quasi-experimental framework. We hypothesize that state governments pursue two distinct goals when allocating grants to local governments: (1) helping aligned local parties win the next election and (2) buying off unaligned municipalities that may obstruct the state government’s policy agenda. We argue furthermore that the relative importance of these two goals depends on local political conditions. In line with this argument, we show empirically that the effect of political alignment on grant receipts varies depending on the degree of local support for the state government. While previous contributions find that aligned local governments always tend to receive larger transfers, our results imply that the political economy of intergovernmental transfers is more intricate.
KeywordsIntergovernmental transfers Political alignment State and local governments Fiscal federalism Quasi-parliamentarism State and local elections
Thushyanthan Baskaran gratefully acknowledges funding by the German National Science Foundation (DFG) through grant BA 4967/1-2 (“The political economy of local fiscal equalization in the German States”). Zohal Hessami thanks the Young Scholar Fund at the University of Konstanz for financing her project “Local governments, political institutions, and fiscal outcomes: quasi-experimental evidence from Germany.” Both authors are grateful to four anonymous referees, Pierre Boyer, Jon Fiva, Dirk Foremny, Katharina Hofer, Panu Poutvaara, and Janne Tukiainen as well as participants at the 2014 IIPF Meeting in Lugano, the 2015 EEA Meeting in Mannheim, the 2015 German Economic Association Meeting in Muenster, and the 2016 AEA Meeting in San Francisco for many helpful comments.
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Conflict of interest
We have no potential conflicts of interest to declare. Our research does not involve human participants or animals. We benefited from grants by the German Science Foundation (DFG, grant no. BA 4967/1-2) and the Young Scholar Fund at the University of Konstanz.
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