Michel Azulai: Public Good Allocation and the Welfare Costs of Political Connections: Evidence from Brazilian Matching Grants
Job talk. Michel Dummar Azulai is a PhD Candidate at LSE. He will present a paper entitled "Public Good Allocation and the Welfare Costs of Political Connections: Evidence from Brazilian Matching Grants".
Michel Dummar Azulai.
Do political connections distort the allocation of public goods across regions? This paper answers this question in the context of partisan connections between Brazilian municipalities and national level ministries approving grants for cities. Ministries are occupied by different political parties over years, providing exogenous variation in connections within a given city, across ministries. Also, administrative data on the universe of grant requests and approvals between 2009-16 from all ministries allows for evidence for many types of public goods, and for direct and indirect effects of connections over grant approvals and requests. Reduced form evidence from a triple differences design within city, ministry and year shows that when a minister changes, cities with mayors in the same party of the new minister request 15% more money and get 14.8% more money approved from that ministry. Additional evidence suggests these are unlikely to be fully explained by ideological alignment, soft information or differences in enforcement. A structural model of grant requests and approvals estimates small ministerial biases towards connected cities and almost linear returns in project size. Due to the linear returns, connected cities request significantly larger grants. If political connections are the only source of distortion in the ministry's decision function, the small bias implies small amounts of misallocation, and the welfare losses due to political connections are of only 0.24% of the average ministry's budget.
Host: Halvor Mehlum