Does EU funding improve local state capacity? Evidence from Polish municipalities

Abstract

Does EU funding improve local state capacity? We focus on two specific types of state capacity, namely (a) the ability to provide information to third parties and (b) to discriminate between different kinds of inquiries. Because the EU’s structural funds are distributed through a competitive mechanism and incentivize expansions in administrative personnel, our theory predicts that high levels of EU funding bring about a higher bureaucratic capacity equilibrium. Empirically, we analyze the effect of structural funds on local government capacity in the largest recipient country: post-communist Poland. Through a randomized survey with more than 2400 municipal administrations, we find that administrations that have benefited more from EU funding, have developed higher levels of discrimination capacity. Yet we find no evidence for higher information provision capacity.