Vertical Transfers, Political Alignment, and Efficiency in Local Government

ABSTRACT When decentralized governments share the public budget, distributive policies are needed to allocate public goods and services among them. To date, however, both the theoretical and empirical literature has largely examined the effect of political orientation on the quantity of transfers received, without considering how efficiently they are managed. This article aims to fill this gap by linking the literature on political alignment and transfers with work on public sector efficiency. Specifically, we examine how bureaucratic input choices might be related to political orientation and political sign and how political coordination between local and higher levels of government could lead to inefficiencies due to clientelism, corrupt practices, or lack of transparency. Our results suggest that political alignment between local governments and higher level governments may lead to a decrease in public sector efficiency, which is detrimental to distributive policies.