Votes and Policies: Evidence from Close Elections in India∗ [Please find the latest version here] Sourav Sarkary December 7, 2018 Abstract Electoral considerations affect government policies and economic outcomes in vari- ous ways. In this paper, I use a close election regression discontinuity design to study the development effects of political alignment between local legislative constituency representatives and state governments in India. I analyze policy and outcome variables from sources of non-proprietary data available annually at a legislative constituency level for the last decade. Constituencies with elected representatives aligned to the ruling party have less growth of visible long term fixed investment goods like new ad- ministrative headquarters and educational institutes. However, there is little evidence of aligned constituencies having less receipts and implementation of different govern- ment schemes or less growth in night-time luminosity. Together with previous findings of more economic growth due to less regulatory obstacle in aligned constituencies, my results can be rationalized by a theory in which the state government has different types of resources to transfer. The state government substitutes policies attributed more to the local constituency representatives with policies which are attributed primarily to the state government in constituencies whose representatives are not aligned to the ruling political party of the state. ∗I am grateful to my supervisors Abhijit Banerjee and Frank Schilbach for their invaluable guidance and support. I ac- knowledge the excellent research assistance of Sandeep Kumar for webscraping, geocoding and data preparation and Pranabes Dutta for his initiative in filing a RTI. Further, this paper has immensely benefited from advice, discussions and comments from Daniel Aronoff, David Atkin, Vivek Bhattacharya, Subhendu Bhowal, Surajit Das, Melissa Dell, Sugato Dasgupta, Dave Don- aldson, Leopoldo Fergusson, Chishio Furukawa, Emily Gallagher, Siddharth George, Ryan Hill, David Hughes, Namrata Kala, Ali Kakhbod, Gabriel Kreindler, Matt Lowe, Jacob Moscona, Benjamin Olken, Garima Sharma, Cory Smith, E. Somanathan and Samuel Young. I acknowledge financial help from the Shultz Fund, NUEPA for giving access to the raw data for school education and help from e-mail correspondence with Sam Asher and Paul Novosad. yDepartment of Economics, MIT. Email: [email protected] 1 1 Introduction Maximizing social welfare without discrimination is a fundamental objective of most modern democracies built on regular elections. Elections are however mostly contests among polit- ical parties whose primary objective is electoral success. The two objectives may diverge significantly. The “baneful effects of the spirit of party” have been pointed out as early as 1796 in the US context (Washington and Hamilton[1796]). While the executive is supposed to serve the people, the members of the executive branch are mostly affiliated with a po- litical party. With theories and evidence of economic voting (Dewan and Shepsle[2011], Healy and Malhotra[2013]) and the role of men and money in elections (Samuels[2002], Kapur and Vaishnav[2013], Vaishnav[2017]) it follows that the governmental policies have every reason to serve as tools for the gains of the political party and its electoral prospects, thereby affecting economic outcomes. Moreover, individual politicians, motivated by private gains, can also affect economic variables (Fisman, Schulz, and Vig[2014], Lehne, Shapiro, and Eynde[2018]) and this effect can be more prominent for politicians affiliated with the ruling political party (Fergusson, Harker, and Molina[2018]). In this paper, I study the economic effects of a particular type of variation in political characteristic: alignment of the constituency’s representative to the ruling political party. The economic effect of political alignment in a locality is not conclusive, either theoretically or empirically. In their study on several economic outcomes in six African countries, Kramon and Posner[2013] show that while coethnics of the President may be better off in some out- comes, the reverse may hold in some other outcome variables. Although Brollo and Nannicini [2012] find more discretionary transfer of funds for infrastructure to aligned municipalities in Brazil, Bueno[2018] finds a simultaneous lower transfer of grants to non-governmental organizations in aligned municipalities. Callen, Gulzar, and Rezaee[2018] show that in the health sector of Punjab province in Pakistan, aligned regions have more resources but worse quality of health sector delivery. Since sections of the society who benefit from each type of policy are likely to be non-overlapping, there is need to study empirically different govern- ment policies and outcomes in the same setting and thereby derive indications for welfare implications of electoral politics in democracies. I use a regression discontinuity design to identify the economic effect of alignment of the constituency’s representative to the ruling political party on various policies and outcome variables in India. I use this empirical strategy since alignment effects considered in alternative identification strategies like panel data regressions (Solé-Ollé and Sorribas- Navarro[2008]) or spatial discontinuity (Callen, Gulzar, and Rezaee[2018]) may also capture 2 some other attributes associated with vote share difference of the party, for instance party constituencies being strongholds for powerful leaders and factions within the party.1 Studying alignment effect among close elections controls for these associations (Lee[2016]). I analyze data of close elections for legislative assemblies in India from May 2008 to March 2018 (elections from May, 2008 are being conducted as per the latest delimitation of constituencies). Asher and Novosad[2017], using the same identification strategy for a previous decade, find more economic growth as indicated by higher satellite night lights, employment and stock prices in politically aligned constituencies in India.2 I use sources of non-proprietary data available annually at the legislative constituency level for the last decade (my data is spatially no coarser than a town/village and temporally no coarser than a year). I analyze the following variables: (a) long-term fixed investment goods such as new district headquarters, subdistrict headquarters, and new schools and higher educational institutions managed by the state government; (b) various rural employment, rural housing and road construction schemes that are implemented by the state government and total receipts and expenditure of schools; (c) satellite data on night lights. While the electorate is likely to attribute the decision on variables in category (a) almost entirely to the state government, survey data indicates that the electorate attribute variables in category (b) partly to the local politicians. Satellite night lights data is a combined outcome of different activities, both by public as well as private sector. According to Asher and Novosad[2017], the electorate attributes a part of such activities, like easing of bureaucratic regulations to local constituency representatives. Following close elections, constituencies with elected representatives aligned to the rul- ing party have less growth of visible long term fixed investment goods like new administrative headquarters and educational institutes. I estimate the index of growth of administrative headquarters to be 0:14 less in aligned constituencies as compared to the standard deviation of 0:72 among non-aligned constituencies and the index of growth of state government- managed educational institutes to be 0:12 less in aligned constituencies as compared to the standard deviation of 0:87 among non-aligned constituencies. Combining the above two indices, I estimate the index of visible long term fixed investment goods in aligned con- 1Callen, Gulzar, and Rezaee[2018] does the analysis with both close election regression discontinuity as well as spatial discontinuity. However, their sample size is much smaller for the former analysis. 2Asher and Novosad[2017] use data for elections held from 1990-2012. Most of their data precedes my period of analysis. Except for satellite night lights (which they use from 1992-2008), their source of data is different from what I use. They use the economic census (of 1990, 1998, and 2005) to measure employment growth and population census (of 1991 and 2001) to measure growth in public goods. They compile stock price data from several proprietary sources (2000-2013). Their data on mining permits are from the Bulletin of Mineral Information (2008-2013). 3 stituencies to be 0:2 less in aligned constituencies as compared to the standard deviation of 0:75 among non-aligned constituencies. My estimates are not statistically significant for subindices and for most variables pertaining to rural employment guarantee scheme, ru- ral housing schemes, rural road construction scheme and total receipts and expenditure to schools. Exceptions are the total utilization of funds under central government sponsored housing schemes which I estimate to be 20:7% more in aligned constituencies and estimates for the total expenditure and completed length of roads under rural road construction scheme which are positive and statistically significant for specifications which include additional (parliamentary constituency-electoral period) fixed effects. Hence, there is little evidence of aligned constituencies having less of any variable pertaining