Abstract

Does additional government spending improve the electoral chances of incumbent political parties? This paper provides the first quasi-experimental evidence on this question. Our research design exploits discontinuities in federal funding to local governments in Brazil around several population cutoffs over the period 1982-1985. We show that extra fiscal transfers resulted in a 20% increase in local government spending per capita, and an increase of about 10 percentage points in the re-election probability of local incumbent parties. In the context of an agency model of electoral accountability, as well as existing results indicating that the revenue jumps studied here had positive impacts on education outcomes and earnings, these results suggest that expected electoral rewards encouraged incumbents to spend additional funds in ways that were valued by voters.