Better Late than Never: Intergovernmental Transfers, Education Provision and Local Accountability

Abstract:     
Intergovernmental transfers are an important source of local public goods and services provision in many developing countries. Yet, the empirical evidence on their effectiveness is still inconclusive, partly because transfers are endogenous to political influence. This paper investigates the impact of intergovernmental transfers from a large-scale poverty relief program on local education spending in China between 1994 and 2000. Using a fuzzy regression discontinuity design, I first show no systematic evidence that counties benefiting from the program enhance local education spending. I then provide evidence that the null-result is due to lack of effective local accountability – the effect of transfers gradually becomes positive and statistically significant after counties experience at least 23 years of village elections, but the average years of experience in 2000 was only 8.9 for counties benefiting from the program. Hence, local accountability is critical to ensure effective transfers on public goods provision even in non-democratic regimes.

working papers series