a1 University of Alicante
a2 Bocconi University
This article uses a regression discontinuity design in close electoral races to disclose purely political reasons in the allocation of intergovernmental transfers in a federal state. We identify the effect of political alignment on federal transfers to municipal governments in Brazil, and find that—in preelection years—municipalities in which the mayor is affiliated with the coalition (and especially with the political party) of the Brazilian president receive approximately one-third larger discretionary transfers for infrastructures. This effect is primarily driven by the fact that the federal government penalizes municipalities run by mayors from the opposition coalition who won by a narrow margin, thereby tying their hands for the next election.
c2 Tommaso Nannicini is Assistant Professor, Department of Economics, Bocconi University; also Research Affiliate–IGIER, Milan, and Research Fellow–IZA, Bonn; Via Rontgen, 1 – 5th Floor, Office D1.16, 20136 Milan, Italy (email@example.com).
We thank Alberto Alesina, Filipe Campante, Claudio Ferraz, Giovanni Mastrobuoni, Carlos Pereira, and seminar participants at ASSET 2010 Alicante, Bristol University, EIEF Rome, Erasmus University Rotterdam, Econometric Society World Conference 2010 Shangai, IGIER-Bocconi, LACEA 2010 Medellin, LSE-NYU Conference on Political Science and Political Economy 2010, MIT Political Economy breakfast, NBER Political Economy Public Finance workshop 2010, NYU Politics, ParisX, Petralia workshop 2010, Porto Cervo workshop 2010, PUC Rio, RES 2011 London, Universidad del Rosario Bogotà, and Universitat Autonoma de Barcelona for their extremely helpful comments. All errors are ours and follow a random walk. F. Brollo acknowledges financial support from the Spanish “Ministerio de Ciencia y Tecnología” and Feder Funds (project SEJ-2007-62656); T. Nannicini acknowledges financial support from the European Research Council (Grant No. 230088).