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Quid Pro Quo: Builders, Politicians, and Election Finance in India- Working Paper 276

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  • Devesh Kapur, Milan Vaishnav
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    Abstract

    In developing countries where elections are costly and accountability mechanisms weak, politicians often turn to illicit means of financing campaigns. This paper examines one such channel of illicit campaign finance: India’s real estate sector. Politicians and builders allegedly engage in a quid pro quo, whereby the former park their illicit assets with the latter, and the latter rely on the former for favorable dispensation. At election time, however, builders need to re-route funds to politicians as a form of indirect election finance. One observable implication is that the demand for cement, the indispensible raw material used in the sector, should contract during elections since builders need to inject funds into campaigns. Using a novel monthly-level data set, we demonstrate that cement consumption does exhibit a political business cycle consistent with our hypothesis. Additional tests provide confidence in the robustness and interpretation of our findings.

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    File URL: http://www.cgdev.org/files/1425795_file_Kapur_Vaishnav_election_finance_India_FINAL.pdf
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    Bibliographic Info

    Paper provided by Center for Global Development in its series Working Papers with number 276.

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    Length: 39 pages
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:cgd:wpaper:276

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    Web page: http://www.cgdev.org

    Related research

    Keywords: elections; election finance; corruption; political economy; India;

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    1. Deniz Igan & Thierry Tressel & Prachi Mishra, 2009. "A Fistful of Dollars: Lobbying and the Financial Crisis," IMF Working Papers 09/287, International Monetary Fund.
    2. Uppal, Yogesh, 2007. "The Disadvantaged Incumbents: Estimating Incumbency Effects in Indian State Legislatures," MPRA Paper 8515, University Library of Munich, Germany.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Seema Jayachandran, 2004. "The Jeffords Effect," UCLA Economics Online Papers 297, UCLA Department of Economics.
    5. Khemani, Stuti, 2004. "Political cycles in a developing economy: effect of elections in the Indian States," Journal of Development Economics, Elsevier, vol. 73(1), pages 125-154, February.
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