Working Paper Series,
Uppsala University, Department of Economics

Abstract: This paper first formulates a model of how the politicians in a local government collectively lobby to raise intergovernmental grants to their local government. The model identifies a relationship between council size and grants received. I then study this relationship empirically using the distribution of intergovernmental grants to the Swedish local governments. I use a fuzzy regression-discontinuity design that exploits a council size law to isolate exogenous variation in council size and find a large negative council size effect. This pattern provides indirect evidence for the occurrence of lobbying. The direction of the effect could be explained by free-riding incentives in individual lobbying effort contribution caused by a collective action problem in grant-raising among local government politicians.

Keywords: lobbying; rent-seeking; collective action problem; group size paradox; local governments; intergovernmental grants; regression-discontinuity

JEL-codes: D72; D73; D78; H71; H72; H73; H77

37 pages, February 7, 2008

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