Friends in High Places: An Examination of Politically Connected Governments

77 Pages Posted: 15 May 2018 Last revised: 1 Aug 2018

Christine Cuny

New York University (NYU) - Leonard N. Stern School of Business

Jungbae Kim

New York University - Stern School of Business

Mihir N. Mehta

University of Michigan at Ann Arbor

Date Written: July 18, 2018

Abstract

We examine variation in the power of U.S. local governments’ representation in Congress and provide evidence of a negative link between political connections and local govern- ments’ stewardship over public resources. To help establish causality, we use plausibly exogenous terminations of powerful political connections and document that local gov- ernments subsequently experience decreases in their federal resources and then improve their stewardship. Furthermore, our results are mitigated in states with a limited history of corruption and in the presence of local political competition. In sum, our evidence suggests that powerful political representation weakens local governmental incentives to act in a socially optimal manner.

Keywords: Political economy, Stewardship, Financial reports, Senate, House of Representatives, City, County

JEL Classification: G18, G38, H1, H7, H83, M4

Suggested Citation

Cuny, Christine and Kim, Jungbae and Mehta, Mihir N., Friends in High Places: An Examination of Politically Connected Governments (July 18, 2018). Available at SSRN: https://ssrn.com/abstract=3171830 or http://dx.doi.org/10.2139/ssrn.3171830

Christine Cuny (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Ste. 10-91
New York, NY NY 10012
United States
212-998-0423 (Phone)

Jungbae Kim

New York University - Stern School of Business ( email )

44 West 4th Street
KMC 10-99
New York, NY 10012
United States

Mihir N. Mehta

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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