(Dis-)Alignment and Government Transfers: Insights from Cassa per il Mezzogiorno

Abstract

How do political considerations influence the allocation of government transfers? Theory and empirical work find that rulers favour politically aligned areas to avoid the opposition reaping the electoral gains from transfers. We show theoretically that these results may be reversed in the presence of incumbency advantages and partisan transfers. To support our argument, we analyse the impact of alignment during the first phase of Cassa per il Mezzogiorno, a large-scale development program in Southern Italy strongly linked to the ruling Christian Democratic party (DC). Using comprehensive data on infrastructure projects and a close-election regression discontinuity design, we show that areas where DC marginally won local elections were less likely to receive a project. Further results reveal that the dis-alignment effect was driven by clear strategic considerations regarding how, when, and which voters were targeted but, ultimately, failed to generate sustained support for DC.