Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107390
Authors: 
Bracco, Emanuele
Lockwood, Benjamin
Porcelli, Francesco
Redoano, Michela
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5215
Abstract: 
This paper provides a simple political agency model to explain the effect 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 and challengers. Then, aligned municipalities receive more grants, with this effect being stronger before elections, and the probability that the aligned 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.
Subjects: 
fiscal federalism
political competition
accountability
flypaper effect
JEL: 
H20
H77
H87
D70
Document Type: 
Working Paper

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