Partisan Alignment and Fiscal Transfers: Evidence from West Bengal

• In Event: Democracy, Political Networks and Distributive Politics in India

Abstract

Decentralized governance aims to ensure efficient allocation of public goods by bringing governance closer to people and increasingly government accountability. Recognizing this, several developing countries have implemented reforms empowering local governments. However, existing evidence on the link between decentralized governance and improved public good provision remains mixed. An important reason for limited effectiveness of local government is vertical fiscal imbalance: local governments have several program implementation responsibilities, but limited sources of revenue that are independent of higher levels of government. In this paper we explore the politics of fiscal transfers in a decentralized context by focusing on how partisan affiliation of local governments influences fund receipt from higher levels of government.
We show that vertical party linkages between local and higher levels of government are crucial in explaining the allocation of welfare funds at the local level. Higher level governments divert funding away from local governments controlled by opposition parties in order to limit their electoral gains. Thus, partisan affiliations (re)shape the institutional arrangements designed for allowing local governments to effectively implement welfare programs. We focus on the context of the state of West Bengal, India – a state with a long history of decentralized governance where local elections are held on partisan lines. We look at welfare programs related to rural employment and housing where local governments have a discretionary role in beneficiary selection and implementation. By leveraging the phenomenon of staggered elections for local and state level governments together with (a) a difference-in-difference design, (b) genetic matching, and (c) a close-election regression discontinuity design, we are able to causally identify the impact of partisan alignment across different levels of government on fiscal transfers. Thus, this paper deepens the existing understanding of conditions that limit effective decentralization of power to local governments.

Authors

• Anustubh Agnihotri, University of California, Berkeley

• Anirvan Chowdhury, UC Berkeley