Distributive Politics and Intergovernmental Transfers: The Local Allocation of European Union Structural Funds

Abstract

The European Union budget is distributed primarily in the form of intergovernmental grants to sub-state governments, which invest the grants in local projects. Transfers are allocated under the auspices of the European structural funds. This paper assesses the causal links between electoral incentives on the recipient side, European funding goals and local grant allocation. Tobit regressions of the allocation patterns in 419 local districts in Germany for the period between 2000 and 2006 suggest the following: Although recipient sub-state governments enjoy substantial discretion in selecting projects, their distributive choices are largely in accord with European goals. As theoretically predicted, however, there is robust evidence that the local allocation of structural funds is distorted by sub-state governments’ electoral concerns.

Keywords: Distributive politics, EU fiscal policy, intergovernmental grants, structural funds

JEL Classification: H30, H87