[Seminaire CREM] Présentation de Hugo Oriola, Université Paris Nanterre / EconomiX
Vertical Political Alignment and Municipal Transfers: Quasi-Experimental Evidence from five German Länder
Abstract:
We study whether political alignment with the state government shapes what German municipalities receive from it and how they spend. Using close-election regression discontinuity designs for municipalities in five heterogeneous Länder over 1995–2023, we measure alignment through three margins—party, ideological bloc and governing coalition—and estimate each separately for council and mayoral elections. Our results show that alignment pays off through two distinct channels. Municipalities with an aligned mayor receive 19 to 24 percent more investment grants, the discretionary, project-based instrument. Municipalities where the governing parties jointly win the council vote receive 12 percent more key allocations, the formula-based transfer. Investment grants are accompanied by higher capital expenditure at one mayoral margin, but we find no systematic effect on the tax multiplier or on proxies of local economic activity: per capita tax revenues, employment and purchasing power. The effects arise in the year of the allocation and, for investment grants, are concentrated in small municipalities
