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Local funds and political competition: Evidence from the National Rural Employment Guarantee Scheme in India

Working paper 42

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Bhanu Gupta and Abhiroop Mukhopadhyay
Abstract
The National Rural Employment Guarantee Scheme (NREGS) in India is one of the largest public employment programmes in the developing world. It was introduced by the central government led by Indian National Congress (INC). While its implementation is, in principle, based on demand for work from households, we investigate how political competition affects intra district allocation of funds under the scheme. Using longitudinal data on funds allocated to blocks and elections held at the block level and addressing the issue of endogeneity by focusing on a subsample of blocks which had close elections, we find that the funds allocated were 22 percent higher in blocks where the INC seat share was less than 39 percent in the previous election. We provide a mechanism by for the effect by showing that the results are only true when the MP of the district, a member of the body that approves the block fund allocation, is from INC.