doi:10.1017/S0003055412000433 Tying Your Enemy’s Hands in Close Races: The Politics of Federal Transfers in Brazil

This article uses a regression discontinuity design in close electoral races to disclose purely politicalreasons in the allocation of intergovernmental transfers in a federal state. We identify the effectof political alignment on federal transfers to municipal governments in Brazil, and find that—in preelection years—municipalities inwhich themayor is affiliatedwith the coalition (and especiallywith the political party) of the Brazilian president receive approximately one-third larger discretionary transfers for infrastructures. This effect is primarily driven by the fact that the federal government penalizes municipalities run by mayors from the opposition coalition who won by a narrow margin, thereby tying their hands for the next election. In a federal state, transfers from the central govern-ment to local governments are crucial ingredientsboth for the efficient provision of public goods and for political competition. Several theoretical and em-pirical studies have documented that the allocation of intergovernmental transfers responds to the incentives of politicians. Although federations usually adopt rules aimed at sheltering the distribution of central transfers from political distortions, elected officials have signifi-cant discretion in using transfers to cultivate swing vot-ers, reward core supporters, or build political alliances.