Government, Interrupted: Local Politicians’ Decision-Making in times of political crisis

This paper develops and tests a theory of how local politicians respond to national political crises, conditioned by their partisan alignment with the government in peril. Local politicians that belong to the incumbent’s coalition will spend relatively more than politicians that are partisan-unaligned with the government. I test the theory by leveraging the Peruvian political crises between 2017 and 2020 using a rich, monthly dataset on district municipalities’ spending. I apply a difference-in-differences design that uses the constitutional fact that election cycles of local mayors are independent of national election cycles. I find that municipalities, where mayors share the same party affiliation as the President, spend 11% more during political crises, especially on discretionary budget lines. This finding would suggest that, even in contexts with weak parties, important cross-level political dynamics can lead to inefficient spending decisions.

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