Grants-in-aid and election outcomes in recipient jurisdictions: The impact of EU funds on mayoral elections in Poland

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Highlights

  • We assess the impact of EU funds on vote shares of Polish mayors.

  • An IV-approach accounts for endogeneity.

  • We find limited evidence that EU funds increase the mayors’ vote share.

  • We test whether the impact is conditional on EU skepticism (Krastev, 2017).

  • EU funds increase vote shares in municipalities with low EU skepticism.

Abstract

We analyze the impact of EU funds on the outcomes of Polish mayoral elections in 2010 and 2014. We employ an instrumental variable approach to account for the endogeneity of EU funds. Our instruments approximate the availability of EU funds. The first instrument builds on the alignment of the local electorate with the regional donor government. The second instrument uses the funds spent in municipalities in the same sub-region dropped from the sample because the mayors do not run again. We do not find convincing empirical evidence in favor of the notion that EU funds increase the vote shares of mayors. We go on to test whether the electoral effect of EU funds is conditional on the attitude towards the donor institution among the population in the recipient population. This conditional factor is under-researched and politically virulent – given citizens’ skepticism towards the EU that Krastev (2017) describes for Central and Eastern European EU members. Our results are affirmative. EU funds increase the vote shares of mayors in municipalities where Krastev (2017) predicts the degree of EU skepticism to be low while they are not found to do so in municipalities where EU skepticism is predicted to be widespread. These results suggest that citizens’ attitudes towards the donor of vertical grants determine the political gains of recipients from using them.

Introduction

The European Union provides substantial funds to promote the development of local infrastructure in its member states (e.g., Becker et al., 2013; Muraközy and Telegdy, 2016). In the period of the multiannual framework 2007–2013, the funds available through its so-called cohesion policy amounted to EUR 347 billion (European Commission, 2007). Muraközy and Telegdy (2016) and Banaszewska and Bischoff (2017) show that the allocation of EU funds is influenced by political factors. In particular, donor governments are found to discriminate in favor of politically aligned recipient governments. This pattern is in line with the literature on the political economy of vertical grants in other contexts. One rationale justifying this discrimination is that donor governments want to promote the electoral campaign of aligned lower-tier governments (see section 2). However, we do not know whether grants-in-aid actually generate the desired electoral goodwill among the population of the recipient jurisdictions. This is where our paper steps in.

We ask: Do EU funds increase the vote share of recipient governments and help them get re-elected? We use Poland as a testing ground and analyze the impact of EU funds spent in Polish municipalities on election outcomes in the 2010 and 2014 mayoral elections. We apply an instrumental variable approach to deal with the endogeneity of EU funds. Our first instrument builds on the fact that there are substantial differences in fund availability at sub-regional level that result from differences in macroeconomic performance. Specifically, it captures the EU funds spent in municipalities of the same sub-region that are dropped from the sample because the mayor does not run for re-election. Our second instrument makes use of the impact of political alignment on fund allocation. It measures the degree of alignment of the local electorate with the regional donor government using data from national elections.

We do not find convincing statistical evidence supporting the notion that spending more EU funds increase the mayors’ vote share. While not in line with the result of Muraközy and Telegdy (2016) on EU funds in Hungary, it is well in line with earlier studies on the electoral effect of development aid (see Dreher, 2004; Moreno-Dodson et al., 2012). The latter conclude that grants-in-aid do not per se help the incumbent government get re-elected. Instead, their electoral effect is found to be conditional on political and economic circumstances in the recipient country. In the current study, we focus on a specific circumstance that has not received much attention so far while it is of particular political relevance for the EU these days. Specifically, we ask whether the political gains among the recipient governments who utilize grants-in-aid depend on citizens’ attitudes towards the donor institution. The political relevance is underlined in the influential essay by Ivan Krastev (2017) on citizens’ skepticism towards the EU that emerged in the post-transitional Central and Eastern European member countries. His arguments imply that EU skepticism is widespread in rural municipalities suffering from the emigration of young and qualified citizens while it is low in urban areas with a high human capital endowment. We find the electoral impact of EU funds across municipalities to be conditional on the degree of EU skepticism among the recipient population. EU funds have a positive impact in municipalities where the degree of EU skepticism is predicted to be low while they do not have an impact in municipalities where this degree is high. These results are bad news for the EU because the political incentives inherent to the EU regional policies do not help direct funds to regions where they are most urgently needed – economically and to reconcile citizens with the EU. Instead, the incentives to attract EU funds are particularly high in better-developed urban and more pro-European municipalities.

The paper is structured as follows. Section 2 reviews the related literature. Section 3 describes the institutional background and section 4 presents our main hypothesis, data and empirical strategy. The corresponding empirical results are presented in section 5. In section 6, we sketch the idea put forward by Krastev (2017) according to which citizens’ attitude towards the EU differs systematically between depending on their level of education and their place of residence and test whether the electoral effect of EU funds is conditional on the degree of EU skepticism within a municipality. Section 7 discusses the results and their policy implications before concluding.

Section snippets

Related literature

Next to the EU, supranational institutions like IMF or World Bank provide grants in-aid to countries in order to promote economic development or help in times of economic crisis (e.g., Dreher, 2004; Dreher et al., 2015). Similar objectives often motivate grants-in-aid used at a sub-national level (e.g. Pettersson-Lidbom, 2010; Keegan, 2012). These different types of grants-in-aid have been studied intensively. In the context of this paper, the literature on the political economy of

Institutional background

Polish municipalities (n ​= ​2478) are granted substantial autonomy and are responsible for a wide range of public services, among others schooling, transportation, housing, social assistance, water supply, waste management and culture. They account for some 80 percent of all revenues and expenditures spent at the three-tier sub-national level. Municipalities receive shares in personal and corporate income taxes (roughly 20 percent of municipal revenues). They are entitled to collect local

Hypotheses, data and empirical strategy

The aim of our paper is to test whether EU funds have a positive impact on the incumbent mayors’ re-election prospects. We are interested in the effect that goes beyond the contribution of EU funds to the short-term hike in expenditures in the election year (see the standard theory of opportunistic budgetary maneuvers in section 2). Our main focus rests on the overall effect of EU funds that results from the projects and infrastructure co-funded by the EU. Given the objective of EU structural

Main results

In this section, we test for the impact of EU funds spent in a municipality on the incumbent mayors’ vote share. We hypothesize that spending EU funds increases his/her vote share. This hypothesis is tested for total EU funds (section 5.1) and for EU funds spent on investments (section 5.2).

Theoretical considerations

EU skepticism accompanies European integration since its early beginnings (Leconte, 2010; Usherwood and Startin, 2013).16 In his widely acknowledged essay “After Europe”, Krastev (2017) shows that a substantial part of the population in the Central and Eastern European EU accession countries has become skeptical about the EU. However, EU skepticism is not universally dominant. Instead,

Discussion and conclusion

In the multiannual framework of 2007–2013, EU Cohesion and structural funds supported Polish municipalities with EUR 12 billion in total – an average of EUR 320 per capita. EU-funds are politically salient and spent on important and highly visible projects (roads, schools etc.). We hypothesize that mayors that spend high amounts of EU funds during their election term increase their vote share. We test this hypothesis using an instrumental variable approach that accounts for the endogeneity of

Declarations of competing interest

None

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