Central Specification

I follow the suggestions of Hahn, Todd, and Van der Klaauw (2001) and Imbens and Lemieux (2008), and use local linear regressions after restricting attention to a close bandwidth around the threshold. Optimal bandwidth choice is based on the procedure outlined inCalonico et al. (2014). The identifying assumption is that unobservables vary smoothly at the cutoff.

Let popGP denote the population under the GP’s jurisdiction. For ease of notation, I define a

rescaled version of the GP population as pg = pop₁₀₀₀GP. Restricting attention to observations within the optimal bandwidth, the empirical specification takes the following form:

Eig = +↵0pg1[pg  5] +↵1(pg 5)1[pg >5] + 1[pg >5] +Xg+✏ig

Eig denotes an electoral outcome, such as the number of candidates standing for election, for seat i in GP g. This specification includes a constant , and fits separate linear regressions before and after the population threshold - the slope coefficient is ↵0 before the threshold, and ↵1 after the threshold. Xg represents GP-level controls such as the number of villages under the council’s jurisdiction as well as demographic controls like the proportion of SC and ST residents. Of primary interest is the coefficient, which measures discontinuities in Eig as GP population exceeds the policy threshold 5000 (i.e. as gp exceeds5). The estimates are interpreted as the causal effects of financial incentives on electoral competition and political selection. Optimal bandwidths are chosen separately for each outcome, following the procedure prescribed byCalonico et al. (2014).18

Standard errors are clustered at the level of the discrete running variable, GP population.

18_{Optimal bandwidths are estimated using data on GPs with population within a bandwidth of 1000 around the} threshold 5000. This avoids the inclusion of other population thresholds at which council composition changes.

Some electoral outcomes are measured at the GP level, like the total number of council seats won without formal opposition. For these outcomes, the central specification uses data at the GP level instead of the seat level:

Eg = +↵0pg1[pg  5] +↵1(pg 5)1[pg >5] + 1[pg >5] +Xg+✏g

The coefficient measures the causal effect of the grant increase on electoral outcomes, and stan- dard errors are clustered at the GP population level.

Governance

Four outcomes at the GP level are used to study governance - council expenditure, council income with a focus on revenue raised by the local council, and NREGA employment generation and targeting. Annual data on GP income and expenditure is available for the years 2013-16 and data on NREGA implementation is available for the years 2011-16. As there are significant outliers in both sets of data, I trim the top 1% of observations from each of the variables. The empirical specification takes the following form:

Sgy = +↵0pg1[pg  5] +↵1(pg 5)1[pg >5] + 1[pg >5] +Xg+ y+✏gy

Sgydenotes a governance outcome in GP g in year y, such as income, expenditure or employment creation. This specification includes a constant , separate linear regressions before and after the population threshold (↵0 and ↵1 denote the slope coefficients before and after respectively), GP level controls Xgand year fixed effects y. The coefficient measures discontinuities in Sgyas GP population exceeds the policy threshold 5000 (i.e. as gpexceeds5), and is interpreted as the causal effect of the financial incentives on government functioning. Optimal bandwidths are chosen separately for each outcome, and standard errors are clustered at the level of the discrete running variable, GP population.

Alternative Explanations

As noted previously, two features of the elected council increase discontinuously as GP popu- lation exceeds 5000 - the financial incentive for “consensus” elections increases by 50 per cent,

and the number of council members increases by 2. This means that the results on electoral and governance outcomes may be driven by the addition of two council members, not the increase in the financial grant. I leverage the existence of alternative population thresholds (i.e. those other than 5000) at which the number of GP members increases by 2. Discontinuity estimates at these alternate thresholds isolate the impact of additional council members on electoral and governance outcomes. These estimates are used to show that it is unlikely that additional council members are driving the effects documented at the threshold 5000.

Panel A of Figure1plots the relationship between the number of GP members and population. We can see that the number of council members is fixed at 7 for GPs with population up to 3000, and increases by 2 for every thousand people thereafter. Panel B of Figure1plots the relationship between the number of GP seats reserved for women and population. Since the law mandates the reservation of at least 33 per cent of seats for women, the number of seats reserved for women increases by one at every population threshold except 5000 and 8000. FigureA.1shows that the number of seats reserved for SCs, STs and OBCs does not increase discontinuously at the thresh- olds 5000 or 8000. Therefore, I estimate the causal impact of two additional council seats (neither reserved for women) by testing for discontinuities in electoral and governance outcomes at the threshold 8000.19

The empirical specifications for electoral and governance outcomes (Eigand Sgy respectively) are analogous to those described above:

Eig = 8+ 81[pg >8] +↵08pg1[pg  8] +↵18(pg 8)1[pg>8] +Xg+✏ig Sgy= 8+ 81[pg >8] +↵08pg1[pg  8] +↵18(pg 8)1[pg>8] +Xg+ y+✏gy

where 8 is a constant, ↵08 and ↵18 are distinct population slopes before and after the threshold 8000, and Xg represents GP-level demographic controls. The 8 coefficient measures the impact of two additional unreserved seats. Optimal bandwidths are chosen separately for each outcome, following the procedure prescribed byCalonico et al. (2014).20 _{Standard errors are clustered at the}

19_{This implicitly assumes that the interaction effects of the higher incentive and additional members are negligible.} 20_{Optimal bandwidths are estimated using data on GPs with population within a bandwidth of 1000 around the} threshold 8000. This avoids the inclusion of other population thresholds at which council composition changes.

level of the running variable, GP population.

4 Results

This section presents estimates of the effect of increased financial incentives for “consensus”-based elections. The financial incentive reduces political competition by reducing the number of candi- dates standing for election for each seat, and increasing the number of seats won without formal opposition at the GP level. The incentive also crowds in a younger, more educated candidate pool; politicians who are ultimately elected from this pool are, on average, 4 years younger and have 2 more years of education. Finally, the impact on multiple measures of governance, including local government expenditure and the targeting of workfare employment, is negative and substantive.