Political alignment and intergovernmental transfers in parliamentary systems: Evidence from Germany

We study partisan favoritism in the allocation of intergovernmental transfers. Our dataset combines local council election data with fiscal data on grant allocations in the German state of Hesse. Our identification strategy is a regression discontinuity design that relies on a perturbation procedure to classify close elections. We find that left-wing state governments favored aligned municipalities while right-wing state governments favored unaligned ones. One plausible explanation for this difference in the behavior of left- and right-wing governments is that only few local councils had absolute right-wing majorities during the tenure of the right-wing state governments. Therefore, right-wing state governments had to use transfers to “buy off” unaligned municipalities, while left-wing state governments could use transfers to enhance their electoral prospects.