Electoral Incentives and the Allocation of Public Funds

Abstract

Abstract Politicians allocate public resources in ways that maximize political gains, and potentially at the cost of lower welfare. In this paper, we quantify these welfare costs in the context of Brazil’s federal legislature, which grants its members a budget to fund public projects within their states. Using data from the state of Roraima, we estimate a model of politicians’ allocation decisions and find that 26.8% of the public funds allocated by legislators are distorted relative to a social planner’s allocation. We then use the model to simulate three potential policy reforms to the electoral system: the adoption of approval voting, imposing a one-term limit, and redistricting. We find that a one-term limit and redistricting are both effective at reducing distortions. The one-term limit policy, however, increases corruption, which makes it a welfare-reducing policy.