2166. Seeking Votes: The Political Economy of Expenditures by the Peruvian Social Fund (FONCODES), 1991-95

Norbert R. Schady
(August 1999)

President Alberto Fujimori created the Peruvian Social Fund (FONCODES) in 1991 with the stated objectives of generating employment, helping to alleviate poverty, and improving access to social services.

Schady uses province-level data on monthly expenditures, socioeconomic indicators, and electoral outcomes to analyze political influences on the timing and geographic distribution of FONCODES expenditures between 1991 and 1995.

He finds that:

• FONCODES expenditures increased significantly before elections.
• FONCODES projects were directed at poor provinces, as well as provinces in which the marginal political impact of expenditures was likely to be greatest.

The results are robust to many specifications and controls. The Peruvian data thus support predictions made in the literature on political business cycles as well as the literature on political influences on the allocation of discretionary funds.

This paper - a product of the Poverty Division, Poverty Reduction and Economic Management Network - is part of a larger effort in the network to understand the functioning and impact of social funds. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Norbert Schady, room MC4-629, telephone 202-458-8247, fax 202-222-3283, Internet address nschady@worldbank.org. (30 pages)

The full report is available in PDF format.