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Mediating distributive politics: political alignment and electoral business cycle effects on municipality financing in Greece

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  • Anastasios Kitsos

    (University of Birmingham)

  • Antonios Proestakis

    (European Commission)

Abstract

We examine the role of political alignment and the electoral business cycle on municipality revenues in Greece for the period 2003–2010. The misallocation of resources for political gain represents a waste of resources with significant negative effects on local growth and effective decentralization. The focus of our analysis is municipality mayors since they mediate the relationship between central government and voters and hence can influence the effectiveness of any potential pork-barrelling activity. A novel panel data set combining the results of two local and three national elections with annual municipality budgets is used to run a fixed-effects econometric model. This allows us to identify whether the political alignment between mayors and central government affects municipality financing. We examine this at different stages of local and national electoral cycles, investigating both direct intergovernmental transfers (grants) and the remaining sources of local revenues (own revenues, loans). We find that total revenues are significantly higher for aligned municipalities in the run-up to elections due to higher intergovernmental transfers. We also find evidence that the 2008 crisis has reduced such pork-barrelling activity. This significant resource misallocation increases vertical networking dependency and calls for policy changes promoting greater decentralization and encouraging innovation in local revenue raising.

Suggested Citation

  • Anastasios Kitsos & Antonios Proestakis, 2021. "Mediating distributive politics: political alignment and electoral business cycle effects on municipality financing in Greece," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(1), pages 1-26, August.
    • Handle: RePEc:spr:anresc:v:67:y:2021:i:1:d:10.1007_s00168-020-01038-7
    DOI: 10.1007/s00168-020-01038-7
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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