Association for Public Policy Analysis & Management

This paper analyses the effect of political factors and social capital on the allocation of public investment from the central government to local governments of the Santiago Metropolitan Area, Chile. Considering panel data of two decentralized and one centralized investment programs over the period 2009-2017, the paper explores if decentralized and centralized investment is equally subject to capture by political interests. Our results reveal that decentralized investment is distributed according to partisan criteria, whereas centralized investment is free from political influence. The reason is that local governments lobby for funds encouraged by their electoral results, but the central disburser does not consider its own electoral prospects. The analysis also points at the role of social limiting local governments’ influence over an arbitrary distribution. Based on these results, the paper discusses the implications for metropolitan governance, highlighting the potential role of a two-tier governance scheme to retain the benefits of decentralization, acquire economies of scale in metropolitan service provision and reduce the margin for pork barrelling.