Rights statement: This is the author’s pre-peer review version of a work that was accepted for publication in Journal of Public Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Public Economics, 123, 2015 DOI: 10.1016/j.jpubeco.2014.11.007
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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Intergovernmental grants as signals and the alignment effect
T2 - theory and evidence
AU - Bracco, Emanuele
AU - Lockwood, Ben
AU - Redoano, Michela
AU - Porcelli, Francesco
N1 - This is the author’s pre-peer review version of a work that was accepted for publication in Journal of Public Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Public Economics, 123, 2015 DOI: 10.1016/j.jpubeco.2014.11.007
PY - 2015/3
Y1 - 2015/3
N2 - This paper provides a simple political agency model to explain theeffect of political alignment between different tiers of government on intergovernmental grants and election outcomes. Key features of the model are (i) rational voters interpret public good provision as a signal of incumbent competence, and (ii) realistically, grants are unobservable to voters. In this setting, the national government will use the grant as an instrument to manipulate the public good signal for the benefit of aligned local incumbents. Then, aligned municipalities receive more grants, with this effect being stronger before elections, and the probability that thealigned local incumbent is re-elected is higher. These predictions are tested using a regression discontinuity design on a new data-set on Italian municipalities. At a second empirical stage, the national grant to municipalities is instrumented with an alignment indicator, allowing estimation of a flypaper effect for Italian municipalities.
AB - This paper provides a simple political agency model to explain theeffect of political alignment between different tiers of government on intergovernmental grants and election outcomes. Key features of the model are (i) rational voters interpret public good provision as a signal of incumbent competence, and (ii) realistically, grants are unobservable to voters. In this setting, the national government will use the grant as an instrument to manipulate the public good signal for the benefit of aligned local incumbents. Then, aligned municipalities receive more grants, with this effect being stronger before elections, and the probability that thealigned local incumbent is re-elected is higher. These predictions are tested using a regression discontinuity design on a new data-set on Italian municipalities. At a second empirical stage, the national grant to municipalities is instrumented with an alignment indicator, allowing estimation of a flypaper effect for Italian municipalities.
KW - Fiscal federalism
KW - Political competition
KW - Accountability
KW - Flypaper effect
U2 - 10.1016/j.jpubeco.2014.11.007
DO - 10.1016/j.jpubeco.2014.11.007
M3 - Journal article
VL - 123
SP - 78
EP - 91
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
ER -