The Political Use of Social Expenditures: Political Economy of Peruvian Compensatory Social Fund (FONCODES) Under the Fujimori Decade

Abstract

This paper takes a further look to the political strategy that subordinated the social resource allocation to the political project of president Alberto Fujimori in Peru (1990-2001). Based on the political business cycles literature and theories explaining the political strategies to allocate government funds to gain votes, I provided robust and extensive empirical evidence on the politically driven -time and geographical- allocation of social funds in Peru during the 1990's. Our empirical analysis using a comprehensive province level dataset shows how the expenditures done by FONCODES are closely related to the political cycle, increasing dramatically in the months previous to any electoral processes where the officialist party participated. Along the same line, using fixed effects models to control for province level unobservable characteristics, we provide robust empirical evidence on how the geographical distribution of the social budget was allocated according to the political interests of the regime. We show that on the first period (1990-1995) the government focalized the expenditures on those provinces that had supported the regime on previous elections, in order to consolidate a strong social base. On the other hand, on a second period (1995-2000), the expenditures were driven towards the recovery of the initial popular approval, focusing on those voters that at some point gave their support to the regime, but later voted for another party. The paper sheds light on the relationship between political processes and social policy, emphasizing the need to have an adequate institutional framework and accountability mechanisms that allow an adequate usage of social funds.