The Political Economy of Portuguese Intergovernmental Grants

Abstract

We use a large and unexplored dataset covering all mainland Portuguese municipalities from 1979 to 2002 to evaluate the impact of political forces in the allocation of grants from the central government to local authorities. Empirical results clearly show that, besides variables that proxy local populations' needs and the macroeconomic situation of the country, political variables condition the granting system: (1) grants increase in municipal and legislative election years; (2) the larger the number of years a mayor has been in office, the larger the amount of funds transferred to his/her municipality. These effects are particularly strong for grants that are not formula-determined.

Keywords: grants, intergovernmental relations, political economy, Portugal

JEL Classification: H77, H59, D72