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Ulric B. and Evelyn L. Bray Seminar in Political Economy

Tuesday, December 3, 2013
4:00pm to 5:00pm
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Baxter B125
Mis-allocation of Political Capital
Frederico Finan, University of California, Berkeley,

This paper investigates how political incentives affect the allocation of public goods using data from Brazil's Federal Legislature, a setting in which federal politicians representing multi-member districts can issue budgetary amendments for public works in their respective districts. We examine these allocations in the context of a model that features three key aspects of this decision. First, politicians choose the allocation of funds to maximize the share of votes they receive in future elections and therefore their chances of staying in power. Second, while politicians are affected by political incentives, they may also have altruistic motives in deciding where to allocate these public works. Third, politicians take into account the fact that their allocation decisions are likely to influence the choices of the other incumbent politicians, and vice versa. Based on our model estimates, we find that relative to a social planner, political incentives distort 11 percent of the expenditure on public goods. Simulations illustrate the tradeoff  between altruistic motives and electoral returns and the extent to which alternative electoral rules can reduce political distortions. Finally, we use the model to evaluate policies aimed at changing the electoral system. We find that a score voting system, which scholars believe is a better form of voting, increases the distortions generated by political incentives.

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