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Revealed Political Favoritism: Evidence from the Allocation of State Lottery Grants in Israel

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  • Momi Dahan
  • Itamar Yakir

Abstract

This paper offers a complementary empirical approach that might be better suited to identify the extent of political favoritism in a multi-decision-maker institution than the standard identification strategy. The typical diff-in-diff identification strategy to estimate political favoritism, which rests on a comparison of two decision makers that allocate public funds to two groups, seems inadequate in a multi-player setting due to the multiple and conflicting political interests and social affiliations. To illustrate how our approach uncovers the degree of political favoritism, we use a policy change in allocating state lottery revenues to Israeli municipalities from discretion-based allocation to rules-based allocation. We find significant political favoritism under the old regime relative to the new one toward Jewish (versus Arab) and affluent (versus less affluent) municipalities. Our results suggest that adopting rules-based allocation might be effective in coping with political favoritism.

Suggested Citation

  • Momi Dahan & Itamar Yakir, 2019. "Revealed Political Favoritism: Evidence from the Allocation of State Lottery Grants in Israel," CESifo Working Paper Series 7882, CESifo.
    • Handle: RePEc:ces:ceswps:_7882
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    Cited by:

    1. Zareh Asatryan & Annika Havlik, 2020. "The political economy of multilateral lending to European regions," The Review of International Organizations, Springer, vol. 15(3), pages 707-740, July.

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    More about this item

    Keywords

    political favoritism; grant allocation; local government; rules vs. discretion;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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