Mayors Reduce Spending in Response to Increased Monitoring to Minimize Electoral Backlash

 

Gustavo Diaz
McMaster University
gustavodiaz.org

 

Slides and paper: talks.gustavodiaz.org

Why does monitoring improve performance?

1. Top-down enforcement

  • Monitoring alone reduces inefficiency
  • Ex-post sanctions, legal investigations

2. Bottom-up accountability

  • Information helps voters hold politicians accountable
  • Those found underperforming are voted out of office

Bottom-up accountability?

Lack of sanctions does not imply lack of accountability

Politicians learn about monitoring efforts before they occur and adjust behavior accordingly

Argument:

Incumbents anticipate bottom-up accountability

  • Politicians selected for auditing expect increased scrutiny on their performance
  • This is true even if monitoring does not uncover irregularities
  • News of monitoring alone attracts voter attention to performance in office
  • Those seeking reelection have incentives to take action before news are public

 

. . .

Monitoring Update performance in office

Why spending?

Monitoring as exogenous shock

Monitoring as exogenous shock

Why reducing spending?

Why reducing spending?

Why reducing spending?

Data: Anti-corruption audits in Brazil

  • Controladoria Geral da União (CGU)

  • 2003-2015

  • Lottery selects municipalities to audit use of federal funds

  • Make results public

  • 40 lotteries, 2,187 audits

Distribution of audits over time

Distribution of audits over time

Research design

  • Mayoral elections in 2004, 2008, 2012, 2016
  • Treatment: Municipality selected for auditing (binary)
  • Outcome: Spending per capita (logged)

 

  • QOI: Average treatment effect of audit selection on spending
  • Distinguish between reelection-eligible vs. term-limited

Results: Election-year spending

Results: Election-year spending

Results: Audit timing

Results: Audit timing

Also in the paper

  • No effect on spending in other years
  • Not an artifice of top-down enforcement
  • Not an artifice of targeted spending
  • Effect more pronounced with higher uncovered corruption

Conclusion

  • Mayors decrease spending in reaction to audit selection

  • More pronounced under reelection incentives

Implications

  • Bottom-up accountability still matters
  • Politicians learn to navigate monitoring efforts over time
  • Long-term monitoring still helpful
  • But at the expense of improving service provision?