Political rents, elections, and in-kind transfers:Theory and empirical evidence

This study examines the claim that political rent-seeking promotes excessive in-kind transfers. Our analysis suggests that: (1) a government seeking political rents would substitute in-kind transfers for cash transfers and (2) this substitution effect is weakened at the end of the election term because the incumbent would shift the composition of transfers towards cash payments in order to secure reelection. Data taken from OECD countries for 25 years support the hypotheses. In particular, we find that the pre-electoral effect is more significant in established democracies where voters are well informed about electoral politics. The findings of this paper imply that the interactions between political rent-seeking and reelection constraints markedly influence the composition of social transfers.