Investing in the roots of your political ancestors

Abstract

Abstract Using regional data for Greece, we document the disproportionate allocation of public investment funds in favor of prefectures with many core supporters of the incumbent party. Our main evidence comes from an Instrumental Variables (IV) analysis that exploits the discontinuity in the political landscape of Greece after a brief military junta (1967-1974) to link the parties established after 1974 with their ancestors from the same ‘political family’ during the pre-dictatorial era. In particular, we show that political ancestors’ electoral strength affects the allocation of public investment, the political support between political ancestor and descendant parties is strongly associated and that both push the allocation of public investment in prefectures with many core supporters. We also provide evidence that the appointment of deputy ministers from the loyal prefectures of the incumbent party plays an important role in this relationship. JEL classification: H1; H4; D7