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When Cooperation tames the Leviathan and Partisan-distorted Grant Allocation feeds it: Evidence from French Municipalities

Author

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  • Touria Jaaidane

    (Université de Lille, CNRS, IESEG School of Management, UMR 9221 LEM, Lille Economie Management, F-59000 Lille, France, and Université Paris 2, CRED)

  • Sophie Larribeau

    (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France)

Abstract

We address the issue of a Leviathan behavior in French municipalities' public personnel expenditures in a context of inter-municipal cooperation (IMC) and investigate whether mayors' partisanship is likely to alter it. We consider a large panel dataset of municipalities embedded in IMC structures between 2011 and 2018. This recent period witnessed a decrease in the grant from the central government implemented to curb the increasing trend of local public expenditures, although no binding budgetary rules fall on municipalities. Our main results, obtained using an original identification strategy, are threefold. We first find evidence of a substitution effect between municipal and IMC personnel expenditures revealing that rationalization is operating. Second, we find a partisan alignment through the grant allocation: despite its formula-based definition, municipalities aligned with the central government receive more than those which are unaligned. Third, we show that cuts in grants lead to cuts in municipalities' public wage bills, while partisanship hinders such cuts.

Suggested Citation

  • Touria Jaaidane & Sophie Larribeau, 2021. "When Cooperation tames the Leviathan and Partisan-distorted Grant Allocation feeds it: Evidence from French Municipalities," Economics Working Paper Archive (University of Rennes & University of Caen) 2021-04, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:2021-04
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    More about this item

    Keywords

    Public finance; Local governments; Inter-municipal cooperation; Inter-governmental transfers; Partisanship; Instrumental variables;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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