When Cooperation tames the Leviathan and Partisan-distorted Grant Allocation feeds it: Evidence from French Municipalities

Touria Jaaidane and Sophie Larribeau ()

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: We address the issue of a Leviathan behavior in French municipalities' public personnel expenditures in a context of inter-municipal cooperation (IMC) and investigate whether mayors' partisanship is likely to alter it. We consider a large panel dataset of municipalities embedded in IMC structures between 2011 and 2018. This recent period witnessed a decrease in the grant from the central government implemented to curb the increasing trend of local public expenditures, although no binding budgetary rules fall on municipalities. Our main results, obtained using an original identification strategy, are threefold. We first find evidence of a substitution effect between municipal and IMC personnel expenditures revealing that rationalization is operating. Second, we find a partisan alignment through the grant allocation: despite its formula-based definition, municipalities aligned with the central government receive more than those which are unaligned. Third, we show that cuts in grants lead to cuts in municipalities' public wage bills, while partisanship hinders such cuts.

Keywords: Public finance; Local governments; Inter-municipal cooperation; Inter-governmental transfers; Partisanship; Instrumental variables (search for similar items in EconPapers)
JEL-codes: C23 D78 H70 H72 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-ure
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