Resource transfers to local governments (West Bengal)

This EDI Working Paper arises from the research undertaken for a case study on “Discretion versus rule-based budgeting and assignment in Indian governments“.

The study shows how political support of household heads respond to receipt of different private and public good benefits delivered by local governments, and whether upper level governments respond strategically by manipulating program budgets to lower level government in West Bengal, India.

The authors exploit redistricting of electoral boundaries by a non-partisan Election Commission, a plausibly exogenous shock to political competition. Consistent with a model of politically motivated allocation, private recurring benefit programs contracted (resp. expanded) in villages redistricted to more competitive constituencies when bottom and upper tier governments were controlled by opposing (resp. same) parties. The resulting changes in household benefit flows help predict household political support, which in turn rationalize the inter-village targeting patterns. The results illustrate the tendency for political parties to manipulate transfers across constituencies in the absence of formula-based grants to local governments, and more generally for political incentives to focus on delivery of short-term private benefits rather than one-time benefits or public goods consistent with theories of political clientelism.

Authors:

• Pranab Bardhan, University of California, Berkeley
• Sandip Mitra, Indian Statistical Institute
• Dilip Mookherjee, Boston University
• Anusha Nath, Federal Reserve Bank of Minneapolis