Public Finance in the Era of the COVID-19 Crisis
18-20 August 2021 | Online, Organized by University of Iceland, Reykjavík
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Please note that all times are shown in the time zone of the conference. The current conference time is: 5th Dec 2021, 06:41:01pm GMT
D01: Political Economy II
10:45am - 11:07am
Political Alignment and Project Funding
Friedrich-Alexander-Universität Erlangen-Nürnberg, Germany, School of Business and Economics
We analyze the relationship between the party affiliation of politicians at different levels of government and the spatial distribution of funding for research, development and innovation projects. In particular, we are investigating whether more federal grants are being granted in Germany for projects in federal states whose government is led by the same political party as the responsible ministry at federal level. Our dataset contains detailed information on publicly funded projects in Germany in the period 2010-2019. Using a fixed effects estimation approach, we find a link between grant allocation and party affiliation of funding for research, development and innovation projects, in particular smaller ones. For these projects, political alignment is associated with an average increase in public funding by almost 10,000 euro. Our results suggest that public funds for research, development and innovation projects could be used more efficiently than they are.
11:07am - 11:30am
Economic Deprivation and Radical Voting: Evidence from Germany
ifo Institute Munich, Germany
Using a unique dataset covering different indicators of economic deprivation as well as federal election outcomes at the county-level in Germany for the period from 1998 to 2017, we examine whether economic deprivation affects the share of votes for radical parties using IV estimation. Our results suggest that an increase in economic deprivation has a sizeable effect on the support for radical parties at both ends of the political spectrum. The higher a county’s rate of relative poverty, the average shortfall from the national median income, and the poverty line, the higher the vote share of radical parties. We also provide evidence that regional variation in economic deprivation gave rise to the electoral success of the populist right-wing party AfD in the federal election of 2017. Our findings thus indicate that a rise in economic deprivation may undermine moderate political forces and be a threat to political stability.
11:30am - 11:52am
Revisiting the Consequences of Civil Conflict
Leibniz University Hannover, Germany
This paper proposes a new way to account for subnational conflict exposure and provides new evidence on the longevity of conflict's detrimental effects. The literature disagrees whether civil conflicts have long-lasting negative effects on economic development. I trace this disagreement to different approaches in measuring conflict exposure. The common practice to use subnational aggregates of conflict intensity ignores essential intra-regional variation. As a more accurate measure, I propose the share of economic activity in proximity to conflict events. Estimating a Bartik-like IV model at the district level covering 70 countries, I provide causal evidence that conflict exposure significantly decreases economic activity up to four years after conflict, and that this effect aggravates over time.
11:52am - 12:15pm
Corruption under Austerity
1Università di Milano; 2ETH Zurich, Switzerland
We study how policies limiting the spending capacity of local governments may reduce corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to small Italian municipalities. The DSP led to a decrease in both recorded corruption rates and corruption charges per euro spent. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures. The reduction in corruption is linked to accountability incentives as it emerges mostly in pre-electoral years and for re-eligible mayors. We then estimate the impact of the extension of the DSP on local welfare in the following years, finding a null effect. Overall, our findings suggest that budget constraints might induce local governments to curb expenditures in a way that dampens their exposure to corruption without depressing local welfare.
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