Subnational Favoritism in Development Grant Allocations - Empirical Evidence from a Decentralized Country
University of Freiburg
Wednesday, October 16, 2019
Taylor-Hibbard Seminar Room (Rm103)
12:00 pm-1:30 pm
We investigate local favoritism in the allocation of subnational public funding. Using a unique panel data set of 410 Indonesian districts for the period 2004-2013, we exploit the discretionary nature of a government grant and Indonesia’s large number of asynchronous local direct elections to investigate if the origin of the provincial governor determines fund allocations to the district level. We find that birth districts of incumbent governors receive significantly larger shares of discretionary grants compared to the other districts within the same province. Favoritism is limited by local electoral accountability and driven by governors with a political career background in their home district. Reelection motives of governors cannot explain local favoritism. Formal political party ties to a district administration do not significantly influence grant allocations. The allocations of formula-based transfers, which limit the discretionary power of a governor, are not affected by local favoritism.