The effect of political representation on the geographic distribution of income: Evidence using Belgian data

- We consider net transfers resulting from the income tax and social security in Belgium.
- These transfers are of high economic importance, and are largely formula-based.
- However, we find that an electoral district receives more of them with every extra federal minister originating from it.
- Two sets of exogenous changes in ministers allow us to establish a causal link from ministers to transfers.

This paper investigates the role of political representation in explaining geographical variation in social security and income tax transfers. To quantify the causal link going from political representation to transfers, we identify two sets of exogenous changes in political representation and use an instrumental variable approach. Using Belgian data for the 1995-2010 period, we find that transfers to inhabitants of a particular electoral district increase significantly with every extra federal minister originating from that electoral district. Given that social security and income tax transfers appear to be largely formula-based this result is surprising.