Tamás Vasvári (p)

Andrés Rodríguez-Pose

Our aim is to give a general overview on current state of political favouritism in financing local governments in Hungary. Based on the fiscal federalism theorem, our general assumption is that the results of shifting from rule-based grants to discretionary transfers may be similar to centralization. However, in this case only unaligned settlements suffer welfare loss, while favoured settlements experience welfare gain. Accordingly, our presentation covers various fields of local financing from this perspective. First, we will show how grant design determined favouring or disfavouring municipalities between 2015 and 2018. We will also provide evidence on the rise of political influence of the MPs in grant allocation, predominantly in EU funds. Second, we analyse how the outcome of the local election held in 2019 affected grant allocation. Third, we will show the preliminary results on local borrowing initiatives, subject to approval of the central government. We found that grant designs reflect political decisions differently. While rewarding is clearly captured in case of targetable grants, transfers that are subject to open calls and application disfavours settlements in opposition. Political bias of EU funds is further strengthened by alignment of the MPs and also contributed to the outcome of the national election in 2018. Regarding the reaction on the local election outcome, we found that changing political sides triggered a strong rewarding policy from the central government towards those municipalities who remained or became aligned after election, meaning an extra 73.5 and 66.5 percent of discretionary funds compared to those who became or remained unaligned. Moreover, the decision on local borrowing show also strong political patterns. According to our findings, political influence in central decisions had continuously increased since 2014, thus unaligned settlements may face welfare losses and possible deficiencies in public services due to lack of funds.

Vicente Rios (p), Lisa Gianmoena, Jesús Peiró-Palomino, Andrés Picazo-Tadeo, Mercedes Beltran

Tamás Vasvári

This study investigates the link between women’s political empowerment and the quality of government in a sample of 233 European regions. Given that the relationship is highly simultaneous, we use exogenous variation in preindustrial societal traits, legal origins, geographic characteristics, and historical socio-demographic features to construct instrumental variables for the quality of government and women empowerment. A novel aspect of our work is that we use random forests forecasts in the construction of our instrumental variables. This machine learning technique helps build strong instruments given that its predictive accuracy is superior to that of linear regression models. Our IV regressions show that women’s political empowerment increases the quality of government and that the quality of government also exerts a positive impact on women’s political empowerment. This finding is robust to the effect of influential observations and outliers, the measurement of women’s political empowerment, the treatment of other covariates' endogeneity, or alternative estimation strategies allowing for institutional spillover effects across regions.

Dana Kubenkova (p), Stefan Rehak

Vicente Rios

see extended abstract

Andrés Rodríguez-Pose (p), Neil Lee, Cornelius Lipp, Javier Terrero-Davila

Dana Kubenkova

Economic change over the past twenty years has rendered many individuals and territories vulnerable, leading to greater interpersonal and interterritorial inequality. The rise in inequality is considered to be at the root of the growing discontent fuelling populism and anti-system voting across the developed world. Yet, there is limited comparative evidence as to whether discontent at the ballot box is more a consequence of unequal or left-behind places. In this paper, we assess the link of levels and changes in regional and local wealth and interpersonal inequality with the rise of anti-system voting in Europe and in the United States (US). The analysis —conducted at small region level for Europe and counties for the US— shows that there are similarities and differences in the factors connected with anti-system voting on both sides of the Atlantic. In Europe, left-behind places where income polarisation is greater have heeded the appeal of populism. In the US, the picture is more complex. Although local economic decline and the rise of inequalities cannot explain the support for populism on their own, these factors gain significance when interacted with the racial composition of the area. Declining areas, with a higher share of white people and where inequalities have increased, have embraced populism. Similar counties with a higher share of minorities shunned Donald Trump. This suggests that both factors are forces of political polarization between white and more racially diverse areas.