A comprehensive approach to intergovernmental grants’ tactical allocation. Theory and estimation guidelines

Abstract

Political economy literature highlights the tactical use of intergovernmental grants for electoral purposes; however, it provides different mechanisms and explanations behind these patterns. In this paper, we propose a model that includes 3 branches of the literature in order to provide a comprehensive explanation behind the tactical allocation by central governments. We identify 3 key parameters that shape the tactical allocation of grants: the electoral rule, the relative importance of the objective of the central government with respect to the local government, and the extent to which citizens attribute local expenditure to the direct action of the local government vs the central government (local political appropriability). In addition, our model also provides a guideline for designing and interpreting empirical results on the tactical allocation of grants distribution.

Subnational borrowing and bailouts: When the federal government looks at the votes (differently) and its borrowing matters

“…Recently, Daniele et al (2020) have theoretically described, and empirically verified in the elections to the EU Parliament, how voters strategically select more extreme federal representatives than their own ideology with the aim of obtaining more generous bailouts if necessary. Fiorillo and Merkaj (2020) offer a comprehensive view of three main factors shaping the tactical use of grants by federal incumbents: the electoral rule, the relative importance of interests for supporting federal government reelection versus that of the state government, and the extent to which citizens attribute the benefits of local spending to local governments or, in contrast, to the decisions taken by the federal government.…”

“…Some examples can be found in Robinson and Torvik (2009), Kaiser and Taugourdeau (2013), Hickey (2015), and Daniele et al (2020). More recently, Fiorillo and Merkaj (2020) provide an eclectic approach to the main factors guiding the allocation of intergovernmental grants for electoral purposes. The point is, therefore, that political motivations at the federal level move through more complicated channels than those set up in the workhorse model by Goodspeed (2002).…”