The economics of choice in the allocation of intergovernmental grants to local authories

Abstract

The empirical study and modelling of processes and motivations behind government behavior has been relatively meager. This paper has formulated and estimated a model designed to explain the allocation of intergovernmental grants to local authorities. The model takes into consideration the fact that this process is governed by mixed motivations associated with both the desire to adopt policies and actions based on the concept of public interest and with the desire for re-election. The model was applied to data pertaining to 52 local authorities in Israel under two governments. The principal findings of the foregoing analysis can be summarized as follows. First, the behavioral mechanism operating beyond intergovernmental grants allocation is inherent in the political system and equally applies to the two governments. Second, this mechanism is governed both by factors representing objective criteria describing the needs of the populations and by political factors representing the desire for re-election. Differences in the behavior of the two governments seem to be significant as far as some objective variables are concerned, but are almost insignificant as far as the political variable is concerned. Third, as in other studies conducted in the U.S., our findings support the hypothesis that in their attempt to maximize the prospects for re-election, governments find it preferable to pursue policies which reward their supporters rather than ‘buy-off’ their opponents. Lastly, by allowing per-capita grants to be a non-monotonous function of the political variable, it was found that indeed both governments have increased per-capita grants as a function of POL up to a certain level and decreased it thereafter.