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

  • Devesh Kapur, Milan Vaishnav
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    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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    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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    1. Seema Jayachandran, 2004. "The Jeffords Effect," UCLA Economics Online Papers 297, UCLA Department of Economics.
    2. Deniz Igan & Thierry Tressel & Prachi Mishra, 2009. "A Fistful of Dollars: Lobbying and the Financial Crisis," IMF Working Papers 09/287, International Monetary Fund.
    3. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
    4. Sandip Sukhtankar, 2012. "Sweetening the Deal? Political Connections and Sugar Mills in India," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 43-63, July.
    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.
    6. Uppal, Yogesh, 2007. "The Disadvantaged Incumbents: Estimating Incumbency Effects in Indian State Legislatures," MPRA Paper 8515, University Library of Munich, Germany.
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