Granting votes: exposing the political bias of intergovernmental grants using the within-between specification for panel data
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Instead of alleviating fiscal inequalities, intergovernmental grants are often used to fulfill the grantors’ political goals. This study uses a unique panel dataset on more than 500 Croatian municipalities over a 12-year period to uncover the extent to which grant distribution is biased owing to grantors’ electoral concerns. Instead of the default fixed effects approach to modelling panel data, we apply a novel within-between specification aimed at uncovering the contextual source of variation, focusing on the effects of electoral concerns on grant allocation within and between municipalities. We find evidence of a substantial political bias in grant allocations both within and between municipalities, particularly when it comes to local-level electoral concerns. The paper offers researchers a new perspective when tackling the issue of politically biased grant allocation using panel data, particularly when they wish to uncover the simultaneous impact of time-variant and time-invariant factors, or when they cannot apply a quasi-experimental approach because of specific institutional contexts.
KeywordsIntergovernmental grants Political bias Within-between specification Vote-buying
JEL ClassificationD72 H77 C23
Josip Glaurdić and Vuk Vuković wish to thank Irena Kravos of the Croatian Electoral Commission, Ivanka Purić of the Croatian Bureau of Statistics, Mirna Valinger of the Croatian Tax Administration, and in particular to Maruška Vizek of the Institute of Economics, Zagreb for invaluable help with data collection. The article has benefited from comments and suggestions by Andrew Bell and Kelvyn Jones, and two anonymous reviewers. Josip Glaurdić is also grateful to the Leverhulme Trust and the Isaac Newton Trust (ECF-2012-399\7) which supported his work on this study.
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