Tying Your Enemy's Hands in Close Races: The Politics of Federal Transfers in Brazil

TLDR: In this paper, the authors used regression discontinuity design in close electoral races to disclose purely political reasons in the allocation of intergovernmental transfers in a federal state, and found that 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.

Abstract: 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.

Figures

Figure 5 – Testing the continuity of the density in close races

Table 9 – Last two-year transfers and political capital, RDD heterogeneity

Figure 1 – Politically motivated transfers

Figure 2 – Timing of Brazilian elections

Table 8 – The impact of political alignment on electoral outcomes, RDD estimates

Table 7 reports the main RDD results in (close) two-candidate and three-candidate elections. In the two-candidate sample (panel A), according to the baseline estimation with spline polynomial approximation and full bandwidth as in equation (8), being affiliated with the coalition of the Brazilian President increases the amount of per-capita infrastructure transfers by about 36.9%.16 The effect of being affiliated with the President’s party is instead not statistically significant. In the three-candidate sample (panel B), being affiliated with the President’s coalition increases transfers by about 26.3%. The effect of being affiliated with the President’s party amounts to 34.3%, although it is significant only at a 10% level. The RDD results on the President’s coalition are a direct confirmation of Proposition 1 in our model. The fact that the results on the President’s party are less robust could receive a twofold explanation: from a political point of view,

Full text

Brollo, Fernanda; Nannicini, Tommaso
Working Paper
Tying your enemy's hands in close races: The politics
of federal transfers in Brazil
IZA Discussion Papers, No. 5698
Provided in Cooperation with:
IZA – Institute of Labor Economics
Suggested Citation: Brollo, Fernanda; Nannicini, Tommaso (2011) : Tying your enemy's hands in
close races: The politics of federal transfers in Brazil, IZA Discussion Papers, No. 5698, Institute
for the Study of Labor (IZA), Bonn,
https://nbn-resolving.de/urn:nbn:de:101:1-201105173341
This Version is available at:
http://hdl.handle.net/10419/51908
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DISCUSSION PAPER SERIES
Forschungsinstitut
zur Zukunft der Arbeit
Institute for the Study
of Labor
Tying Your Enemy’s Hands in Close Races:
The Politics of Federal Transfers in Brazil
IZA DP No. 5698
May 2011
Fernanda Brollo
Tommaso Nannicini

Tying Your Enemy’s Hands in Close Races:
The Politics of Federal Transfers in Brazil
Fernanda Brollo
University of Alicante
Tommaso Nannicini
Bocconi University, IGIER
and IZA
Discussion Paper No. 5698
May 2011
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IZA Discussion Paper No. 5698
May 2011
ABSTRACT
Tying Your Enemy’s Hands in Close Races:
The Politics of Federal Transfers in Brazil
*
This paper uses a quasi-experimental strategy to disclose utterly political reasons behind the
allocation of intergovernmental transfers in a federal state. We apply a regression
discontinuity design in close elections to identify the effect of political alignment on federal
transfers to municipal governments in Brazil. We find that municipalities where the mayor is
affiliated with the coalition of the Brazilian President receive larger (discretionary)
infrastructure transfers by about 40% in pre-election years. This effect is mainly 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.
JEL Classification: C21, D72, H77
Keywords: federal transfers, political alignment, regression discontinuity
Corresponding author:
Tommaso Nannicini
Department of Economics
Bocconi University
Via Roentgen 1
20136 Milan
Italy
E-mail: tommaso.nannicini@unibocconi.it
*
We thank Alberto Alesina, Filipe Campante, Claudio Ferraz, Giovanni Mastrobuoni, and seminar
participants at ASSET 2010 Alicante, Bristol University, EIEF Rome, Erasmus University Rotterdam,
ESWC 2010 Shangai, IGIER, LACEA 2010 Medellin, LSE, NBER Political Economy Public Finance
workshop 2010, 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. Brollo acknowledges financial support
from the Spanish “Ministerio de Ciencia y Tecnología” and Feder Funds (project SEJ-2007-62656),
Nannicini acknowledges financial support from the European Research Council (grant No. 230088).

1 Introduction
In a federal state, transfers from the central government to lower-tier administrative units
are a crucial ingredient both for the efficient provision of public goods and services, and
for the competition between political actors. A large body of research in public finance
has investigated the normative justifications of transfers (e.g., see Oates, 1972). From a
political economy perspective, however, it is hard to believe that central governments—
because of either their own preferences or institutional and political constraints—behave
as a benevolent social planner would do, that is, using conditional matching grants to
internalize externalities or intergovernmental transfers for redistributive purposes. Indeed,
although federations usually adopt allocation rules that shelter the distribution of transfers
from political distortions, incumbent politicians have a lot of discretion in using them to
tease swing voters, reward core supporters, or build alliances with other politicians. In
other words, using Cox’s (2009) taxonomy, real-world distributive politics might respond
to the vote-producing goals of persuasion of unattached voters, mobilization of attached
voters, or coordination among political parties.
In this paper, we apply a Regression Discontinuity Design (RDD) in close electoral
races to disclose utterly political reasons behind the allocation of central transfers to local
governments in Brazil. In particular, we identify the impact of political alignment between
the mayor and the Brazilian President on the amount of federal transfers to municipalities.
The intuition behind our identification strategy is simple. If random factors—for example,
unexpected breaking news or rain on election day—played even a small role in deciding
electoral outcomes, the victory of the mayoral candidate aligned with the President would
mimic random assignment in those municipal elections decided by a narrow margin. The
RDD setup therefore delivers a (local) source of exogenous variation in political alignment.
Consistently with the Brazilian multi-party system, we measure political alignment w ith
respect to both the government coalition and the political party of the President.
The theoretical literature has provided contrasting explanations for politically moti-
vated transfers, or tactical redistribution.
1
On the one hand, incumbent politicians may
use intergovernmental transfers to increase their (or their allies’) reelection probability at
1
See Cox (2009) for a s urvey on the political economy of distributive politics.
1