Money Matters: Municipal Budgets and Asset Accumulation of Brazilian Mayors

Abstract

This paper studies the effect of additional government revenues on the asset accumulation of elected politicians. The data refers to the municipal governments in Brazil, where the federal transfers to the municipalities change exogenously and discontinuously at given population thresholds. This key feature of the federal transfers allows me to employ a regression discontinuity design. I find that larger transfers to the municipal governments increase the asset growth of the mayors. The estimate is robust to a wide range of specifications but lacks robustness for some bandwidth selections. However, the estimate remains positive for all bandwidth selections. I explore several different explanations for the variation in asset accumulation between mayors. I am unable to find any evidence of which mechanism is more important in determining the asset growth, and therefore conclude that the possible mechanism of corruption cannot be taken off the table.