Touria Jaaidane
email: cred.touria.jaaidane@univ-lille.fr

Sophie Larribeau
email: sophie.larribeau@univ-rennes1.fr

The Eects of Inter-Municipal Cooperation and Central Grant Allocation on the Size of the French Local Public Sector

Keywords: Public sector size, Local governments, Inter-municipal cooperation, Intergovernmental transfers, Partisanship, Instrumental variables JEL Classication: D78 -Positive Analysis

The analysis of French municipalities' public personnel expenditures allows us to study the issue of the size of the local public sector. We concentrate on two paths that French authorities have followed to limit it, i.e., the promotion of intermunicipal cooperation (IMC) and the cut in grants received by municipalities. Our objective is to evaluate their respective role in the evolution of public personnel expenditures at the municipal level, in a context where local politics comes into play. We consider a large panel dataset of municipalities embedded in IMC structures between 2011 and 2018. Our main results, obtained using an original identication strategy, are threefold. We rst nd evidence that a substitution eect between municipal and IMC personnel expenditures is at work. Second, we nd a partisan distorsion through the grant allocation: despite its formula-based denition, aligned and unaligned municipalities are treated dierently by the central government. Third, we show that cuts in grants lead to cuts in municipalities' public wage bills, while partisanship hinders such cuts.

Introduction

We study French municipalities' public personnel expenditures to address the issue of the local public sector size. France has witnessed an increasing trend in the local public expenditures, as the result of the soft budget constraint falling on its municipalities. We choose to focus on two channels used by French authorities to limit this expansion. More precisely, French authorities have fostered inter-municipal cooperation (IMC) since the early 1990s and recently decided cuts in the grants received by municipalities. Our objective is to evaluate their respective role in the evolution of public personnel expenditures at the municipal level. However, French authorities good intentions are bedevilled by local politics. The attempt to put the brakes on this increase in spending is compromised by mayors' opportunistic and partisan behavior and strategic use of transfers by the central government.

French municipalities constitute a good laboratory for the study of this issue for dierent reasons. First, we concentrate on a category of current expenditures: local public personnel expenditures which have received little attention, though in France as in many other countries, an important fraction of the population works in the local public sector. Second, as in many European countries, IMC has been promoted in order to rationalize local public expenditures. The institutional change brought by the 2010 Act that forced municipalities to join an IMC structure by 2014 gave rise to interdependent local public decisions. Members of these consolidated structures choose, for instance, the scope of public services to deliver at the municipal and IMC levels. The gradual set up of IMC, reinforced by the 2015 Act, results in an entangledness 1 raising the issue of the public sector size with overlapping jurisdictions. The eect of this overlapping is ambiguous as it might either lead to an expansion for re-election purposes and other rent-seeking motives, or a contraction, reecting a rationalization of the expenses. Third, the increase in current expenditures at the municipal level has become unsustainable for publicnances and the rise in personnel expenditures is a major concern for French central government. Under the pressure of the EU Stability and Growth Pact, French authorities are compelled to contain the evolution of spendings and, without constitutional scal or budgetary binding rules, they are led to adopt other restrictive measures. Since 2014 municipalities have been required to participate in the recovery of public nances, hereafter CRFP 2 , which consists in a planned reduction in the central grant from 2014 to 2017. As the grant is an important share of the municipalities' resources, it is likely to play a key role in the evolution of expenditures. Local politics however blurs the outcomes. 1 Mutualization can be bottom-up (municipal resources such as equipment or personnel are provided to the IMC body) or top-down (from the IMC body to municipalities). Since 2010 municipalities and their IMCs can create common services for their procurement or to manage their computer systems. The extent of this mutualization is none the less still limited. The French Court of Auditors (Cour des comptes) reported that these bottum-up and top-down nancial ows were respectively around 0,3 and 0,6 billion e in 2014.

2 Contribution au Redressement des Finances Publiques.

With a dataset of 2,527 municipalities over the recent period 2011-2018, we use a panel xed eects model and adopt an IV method to identify the causal eects of both the grant and the IMC wage bill on the municipal wage bill. We apply an identication strategy taken from the empirical industrial organization literature to local publicnance. The idea is to build instruments that get rid of local unobservable factors by exploiting the environment of municipalities and IMCs. In short, for a given municipality (resp. IMC body), we look at those municipalities (resp. IMCs) which are comparable in terms of the characteristics relevant for the provision of local public services and compute the average grant (resp. average IMC wage bill) on these comparable neighbors. Below, we provide arguments justifying that our instruments are appropriate, i.e., that the exogeneity and relevance conditions are met. Our approach therefore departs from spatial econometrics as we do not dene the neighborhood according to geographical distance and do not use a spatial autoregressive model, thereby avoiding the spatial/lag IVs simultaneity concerns [START_REF] Gibbons | Mostly pointless spatial econometrics[END_REF]).

We rst show that municipalities do not take advantage of their IMC body to grow. A substitution eect3 is operating between the two tiers. When an IMC body increases its wage bill, e.g. as a result of the increased competencies transferred by a municipality member, the latter decreases its own wage bill. This suggests that it would take more transfers of competencies to the IMC level to limit the municipal expenditures. This should however be interpreted with caution, owing to the magnitude of the personnel transfers4 . Our result does not allow us to invalidate the hypothesis of a natural expansion of the public sector size (the Leviathan hypothesis) as, while the municipal wage bill decreases when the IMC wage bill increases, we do not know which of the two opposite eects dominates. The objective of disciplining the Leviathan has led countries to adopt dierent strategies from institutional rules such as election rules to constitutional binding budgetary dispositions. In France the cut in the central grant has been used to curb the trend of increasing expenses, notwithstanding the absence of any budgetary rule. We nd a positive grant-elasticity 5 of the municipal wage bill meaning that the planned decrease in grant, which started in 2014, did trigger a decline in public wage bills, all other things being equal. However municipalities executives resisted, as the grant-elasticity is smaller 6 after than before the reform, thereby altering the eciency of the cuts in grant.

As mayors have their own agenda, we provide evidence of opportunistic eects on public wage bills: close to a municipal election, data show a spike in public wage bills. Pure partisan and alignment eects might also occur. As a matter of facts, munici-palities governed by a right-wing executive spend less, and this ideology-based eect is enhanced when the mayor's margin of victory is larger. Moreover, we actually nd a partisan distorsion in the grant allocation: despite its formula-based denition, municipalities aligned with the central government and those which are unaligned are treated dierently. As a consequence, the eort in downsizing is antagonized by the mayors' partisanship: the wage bill decreases as the grant decreases for all municipalities, but those from the left-wing decrease theirs less.

The paper is organized as follows. Section 2 presents a review of the studies close to our work. Section 3 gives institutional facts related to French municipalities and their IMC bodies. Section 4 lays out the data and sketches the expected eects of the relevant determinants of the public wage bill. Section 5 is devoted to the identication strategy and gives the elements to support our instrumentation. The empirical results are given in Section 6. Robustness checks are developed in section 7 and concluding remarks close the paper in Section 8.

2 Relation to the literature Our paper combines local public nance and political economy literatures. Since we focus on the interplay between the municipal and intermunicipal levels, our analysis relates to the literature on the eects of overlapping jurisdictions on the size and the composition of the public sector. [START_REF] Brennan | The Power to Tax: Analytic Foundations of a Fiscal Constitution[END_REF] and [START_REF] Zax | Is There a Leviathan in Your Neighborhood?[END_REF], among others, point out the "natural expansion" of the local public sector in this context and argue that constitutional scal rules or competition among jurisdictions might help tame the Leviathan (see [START_REF] Galletta | How to tame two leviathans? revisiting the eect of direct democracy on local public expenditure in a federation[END_REF]). [START_REF] Turnbull | Overlapping Jurisdictions: Substitutes or Complements?[END_REF] and [START_REF] Campbell | Leviathan and Fiscal Illusion in Local Government Overlapping Jurisdictions[END_REF] model the strategic interaction between county and municipal expenditures. Though the result of the interaction is theoretically ambiguous, they empirically conrm the expansion hypothesis. Evidencing unambiguous eects is however dicult due to the complexity of the institutionnal structure of local governments (see [START_REF] Goodman | Local Government Fragmentation and the Local Public Sector: A Panel Data Analysis[END_REF] and [START_REF] Berry | Piling On: The Fiscal Eects of Jurisdictional Overlap[END_REF] for analyses on US data). A related question studied in the literature is the relative impact of grants and income on the size measured either by expenditures or taxes. The ypaper eect, stating that a one dollar increase in the grant has a larger positive impact on local government spending than does an equivalent rise in private income, has been evidenced in German [START_REF] Baskaran | Intergovernmental Transfers, Local Fiscal Policy, and the Flypaper Eect: Evidence from a German State[END_REF]) and Italian [START_REF] Bracco | Intergovernmental grants as signals and the alignment eect: Theory and evidence[END_REF]) municipalities.

The impact of IMC is particularly understudied in the economic literature. The developing research on this topic reveals it is a major concern worldwide and especially in Europe (e.g. [START_REF] Luca | Stronger together? Assessing the causal eect of inter-municipal cooperation on the eciency of small Italian municipalities[END_REF]). Among the rare contributions using French data, [START_REF] Tricaud | Better alone? evidence on the costs of intermunicipal cooperation[END_REF] Merging has also been promoted in some European countries. Although the IMC and the amalgamation processes dier particularly in their legal aspect, they are both justied by the search for economies of scale. Compared to the literature on IMC there is a much larger literature on municipal mergers. [START_REF] Blesse | Do Municipal Mergers Reduce Costs? Evidence from a German Federal State[END_REF] investigate the impact of municipal mergers in the German federal state of Brandenburg on municipal expenditure levels. They show that administrative expenditures decline after mergers. More precisely, the reductions are mainly due to compulsory mergers while voluntary mergers do not lead to expenditure cuts. [START_REF] Egger | Local border reforms and economic activity[END_REF] study German data and show that the amalgamation results in a net positive impact on economic activity. [START_REF] Blom-Hansen | Jurisdiction size and local government policy expenditure: Assessing the eect of municipal amalgamation[END_REF] show that the amalgamation has no eect on Danish municipalities, as costs reduction in some areas are oset by costs increase in others. [START_REF] Harjunen | Political representation and eects of municipal mergers[END_REF] nd that mergers lead to highly unequal political representation between the merging Finnish municipalities. Moreover, the less well represented municipalities experience reduction in local public jobs as compared to those that are more strongly represented.

Our study also contributes to a broad (threefold) agenda in political economy. First, a huge literature7 has evidenced that policymakers resort to manipulations around election times to ensure reelection, thereby generating political budget cycles [START_REF] Nordhaus | The Political Business Cycle[END_REF]). Some empirical studies of the occurrence and magnitude of electoral cycles concentrate on budget decits (among others [START_REF] Gamez | Political Cycles and Public Expenditures at Subnational Level: the Case of Mexico[END_REF]). Other contributions focus on several spending components to highlight those privileged by the incumbent and test the [START_REF] Rogo | Equilibrium Political Budget Cycles[END_REF] "visibility"8 assumption [START_REF] Katsimi | Do Elections Aect the Composition of Fiscal Policy in Developed, Established Democracies?[END_REF], [START_REF] Enkelmann | Political Expenditure Cycles and Election Outcomes Evidence from Disaggregation of Public Expenditures by Economic Functions[END_REF] and [START_REF] Garcia | Political budget cycles revisited: Testing the signalling process[END_REF]). As it is closer to our concern, we mention contributions on electoral cycles in the local public sector both on employment and wages. [START_REF] Chortareas | Political Cycles in Greece's Municipal Employment[END_REF] and [START_REF] Cahan | Electoral Cycles in Government Employment: Evidence from US Gubernatorial Elections[END_REF] provide empirical evidence studying respectively municipal employees in Greece and US local and state government employees. [START_REF] Matschke | Are There Election Cycles in Wage Agreements? An Analysis of German Public Employees[END_REF] gives support for electoral cycles in public sector wages in Germany.

A second part of the political economy literature studies dierent issues such as party and electoral rules eects. The partisan approach [START_REF] Hibbs | Political Parties and Macroeconomic Policy[END_REF]; [START_REF] Alesina | Macroeconomic Policy in a Two-Party System as a Repeated Game[END_REF]) states that politicians pursue ideological goals. The causal impact of parties on dierent economic outcomes such as expenditures and taxes 9 is evidenced in a large empirical body of papers. Several articles document the economic eects of electoral rules [START_REF] Folke | Shades of brown and green: party eects in proportional election systems[END_REF], [START_REF] Ade | Do Constitutions Matter? Evidence from a Natural Experiment at the Municipality Level[END_REF] and [START_REF] Streb | Making Rules Credible: Divided Government and Political Budget Cycles[END_REF]). [START_REF] Klein | Term limits and political budget cycles at the local level: evidence from a young democracy[END_REF] explores the eects of term limits. [START_REF] Freier | Do parties matter? Estimating the eect of political power in multi-party systems[END_REF] analyzes the eects of multi-party systems and proportional rules. Other contributions focus on the eects of electoral competition margin of victory, fragmentation, popularityon policy outcomes (see [START_REF] Solé-Ollé | The Eects of Party Competition on Budget Outcomes: Empirical Evidence from Local Governments in Spain[END_REF], [START_REF] Aidt | Election Results and Opportunistic Policies: A New Test of the Rational Political Business Cycle Model[END_REF] and [START_REF] Boukari | The Political Budget Cycle in French Municipal Elections: Unexpected Nonlinear Eects[END_REF]). Third, the partisan alignment through intergovernmental transfers has received increasing attention and is found in dierent countries [START_REF] Kantorowicz | Electoral systems and scal policy outcomes: Evidence from Poland[END_REF], Solé-Ollé and Sorribas-Navarro (2008), [START_REF] Padovano | The Drivers of Interregional Policy Choices: Evidence from Italy[END_REF], [START_REF] Brollo | Tying your enemy's hands in close races: the politics of federal transfers in Brazil[END_REF], [START_REF] Bracco | Intergovernmental grants as signals and the alignment eect: Theory and evidence[END_REF], [START_REF] Farvaque | Déterminants politiques des transferts de l'État vers les communes: le cas de la DGF[END_REF], [START_REF] Albouy | Partisan representation in Congress and the geographic distribution of federal funds[END_REF] and [START_REF] Hickey | Intergovernmental Transfers and Re-election Concerned Politicians[END_REF]).

Finally, research has also concentrated on the importance of scal and budgetary binding rules (such as the EU stability and growth pact) to limit the distorsions due to politics (among others, [START_REF] Poterba | State Responses to Fiscal Crises: The Eects of Budgetary Institutions and Politics[END_REF], [START_REF] Rose | Do Fiscal Rules Dampen the Political Business Cycle?[END_REF] and [START_REF] Farvaque | L'ecacité des règles budgétaires dans les provinces canadiennes[END_REF]).

3 Institutional Context

Municipalities' budgets

Municipalities' resources consist mainly of tax revenues and grants from the central government. The major grant 10 is allocated to municipalities to help them with their operating budget. It also has a scal equalization objective. This grant is received each year by all the municipalities and its allocation is formula based. The base grant depends on the population and is supplemented to count for the municipalities' heterogeneity.

Municipalities dier in land area, in their nature (rural/urban), geography (moutain area), centrality, attractivity (touristic area). They dier also in their resources (tax bases) and expenses (through the population characteristics, such as income, age structure, and through the number of beneciaries of housing benet, social housing, etc). The French constitution gives local governments autonomy 11 . Until 2014, there was no binding principle falling on municipalities concerning their budget, except the golden rule that forbids borrowing to nance current expenditures. In order to x ideas, the share of personnel expenditures in total current spending represented 52% in 2011 and 55% in 2018. Since 2014, the evolution of local public expenditure has had to meet a non-binding target under the pressure induced by the planned decrease of the grant from the central government. A decrease was rst observed in invesment expenses, followed by a sharp decrease in current expenditures. The objective of reducing expenses was met for 2014-2016 but not in 2017. The target is about to become binding for large municinipulations, that rely either on an opportunistic or partisan approach or both: among others [START_REF] Kneebone | Electoral and Partisan Cycles in Fiscal Policy: An Examination of Canadian Provinces[END_REF], [START_REF] Serritzlew | Breaking Budgets: An Empirical Examination of Danish Municipalities[END_REF], [START_REF] Foucault | La politique inuence-t-elle les décisions publiques locales? Analyse empirique des budgets communaux de 1977 à 2001[END_REF], [START_REF] Foucault | Public Spending Interactions and Local Politics. Empirical Evidence from French Municipalities[END_REF], [START_REF] François | Partisan and Bureaucratic Changes in Public Education Spending. French Empirical Evidence[END_REF] and [START_REF] Sakurai | Opportunistic and Partisan Election Cycles in Brazil: New Evidence at the Municipal Level[END_REF]. 10 Ocial statistics show that this grant represented 21% of total resources in 2011 and fell to 15% in 2018. There also exist distinct targeted grants which are discretionary that we do not consider.

11 The institutional structure of local governments and the policy instruments available are the same for all localities. palities, which must comply with the law on public nance for 2018-2022. An incentive mechanism has been adopted by which municipalities whose expenditures increase less than 1.2 % per year are rewarded and the others penalized.

Inter-municipal cooperation

Municipalities were compelled by successive Acts from 1992 to 2010 to join IMC bodies by 2014 for purposes of eciency. These Acts aimed at reducing tax competition between municipalities and decreasing the costs of local public services through economies of scale. IMC has even been strengthened following the 2015 Act (loi NOTre). The IMC bodies resources come mainly from tax revenuesas they have scal autonomy and a grant from the central government. Two IMC taxation regimes exist. In the additional taxation regime (ATR), both the IMC and the municipalities can set the rates for each of the local taxes. Under the single business tax regime (SBT), the IMC body sets the business tax rate that applies to all its members which remain responsible for the other local taxes. IMC bodies do not receive any direct nancial contribution from its members. However, under SBT regime, the IMC body gets an additional grant amount that is levied by the central government on the IMC members grant. IMC structures also dier according to their jurisdictional type12 , population size and the scope of competencies that municipalities must transfer13 to them. Several large groups of competencies14 can be distinguished: economic development (industrial, business and touristic programs), space management, social housing planning, urban policy, management of collective services (sanitation, water and re services) and environment protection (waste collection, air pollution, noise pollution). The more integrated the IMC body, the larger the set of compulsory competencies transferred15 . As a consequence, the IMC body is in charge of all the transferred competencies16 management. When a municipality transfers a competence to its IMC body, it is followed by a transfer of the personnel dedicated to that competence, together with its associated expenditure. The two levels of government might also proceedin the case the transfer is partialto an exchange of sta, further complexifying their relationship. Besides the competencies transfers, IMC bodies and their members may create functional common services (human resources, computer maintenance services, nance, procurement services).

All this mutualization must be, for budgetary reasons, formalized by contracts. Agreed upon accounting principles of reimbursement exist between IMCs and municipalities. Basically, if one entity uses sta provided by the other, then the former must reimburse the latter. There are bottom-up and top-down nancial transfers between municipalities and their IMC. Our data do not allow us to distinguish between them: we only have their net result, i.e. the wage bills, respectively at the municipal and IMC levels.

Municipal election rules and political parties

Municipal elections are held simultaneously17 every 6 years. The mayor and the municipal council are elected by direct universal surage. When a list gathers more than 50% of the votes there is no second round of voting. Otherwise, a second round is run with all lists obtaining more than 10 % of the votes. The winner takes half of the seats in the municipal council and the rest is allocated proportionally to all the lists of candidates which have more than 5 % of the votes. Before 2014 a municipality which was part of an IMC chose which municipal counsellors would represent it on the IMC council, and since 2014, for municipalities with more than 1,000 inhabitants, they are directly elected. The French political landscape is characterized by numerous competing parties. We retain four categories of party: left-wing18 , right-wing19 , far-right and other parties20 bearing in mind that the latter two represent a small proportion of the elected mayors21 .

4 Expected eects and data

Expected eects

The purpose of our analysis is to identify the eects of both the IMC wage bill and the central grant on the per capita 22 public employees' wage bill at the municipal level. We will use the municipal wage bill as a shorthand for our dependent variable. As for the explanatory variables, we naturally consider the per capita IMC wage bill and per capita grant from the central government, bearing in mind its decline from 2014 onwards. Following our earlier discussion, we also introduce the variables usually considered in the political economy literature to investigate the role of politics. The mayor's party aliation, the degree of electoral competition using the margin of victory and the partisan alignment are used to test for the partisan approach. The opportunistic hypothesis is tested thanks to time dummies for the election year and the preceding year. Finally, we control for the per capita tax revenues and the principal characteristics of the municipalities such as the households' median income, the unemployment rate, and the population, both in density and structure (respective share of young and elderly people) as these variables proxy the demand for public services. On the one hand, the impact of the IMC wage bill on the municipal wage bill is a priori unknown owing to the literature on overlapping jurisdictions. On the other hand, we expect a positive eect for the central grant. Turning to the political variables, the partisan alignment should allow the aligned municipalities to spend more. Moreover, a partisan eect is expected, with right-wing (RW) municipalities spending less than those which are left-wing (LW), and a greater margin of victory is likely to enhance the eect of party aliation. Finally, electoral manipulation should be reected in a positive coecient of the election time dummies.

Data

Our study covers the very recent period 2011-2018, starting right after the 2010 Act which required every municipality to be a member of an IMC structure by 2014. The following table 1 displays the denition and source of the dierent variables.

Ministry of Home Aairs

Notes: Median income per unit of consumption is used to control for the number of people in the household. Young and Elderly are respectively the shares of 0-14 and above 75.

The unemployment rate is proxied by the ratio of job-seekers to the municipal population.

We consider 2008 and 2014 municipal elections and legislative elections of 2007 and 2012.

The results, including party aliation and margin of victory, of the 2008 municipal elections are available only for municipalities above 3,500 inhabitants23 . For that reason our sample only contains municipalities of more than 3,500 inhabitants in 200824 . All the monetary data are expressed in real values (2018 thousand e). Eventually we build an original panel dataset of 2,527 municipalities spanning the period 2011-2018. However, we face the usual issue of missing values in merging databases of dierent sources. Summary statistics and the cross-correlation table are respectively given in tables 8 and 9 in the appendix.

Motivations and identication strategy

Let us rst give the sample average of the key variables under study. Over the period, the average municipal wage bill amounts to 590.6 e per inhabitant and the grant average is 213.2 e per inhabitant, resulting in the grant representing 36% of the municipal wage bill. The average IMC wage bill is equal to 133.1 e per inhabitant.

Partisan eect on personnel expenditures

We now investigate the relevance of partisanship as decisive for the municipal wage bill.

Our data on the municipal wage bill show that, on average, LW municipalities spend more than RW ones. A T-test for comparing the means reveals that LW municipalities spend on average 19.5 e more per inhabitant than do their RW counterparts and this dierence is statistically signicant (p=0.00).

In order to provide a causal design for the party eect on municipal wage bill, we use close elections RDD. This procedure allows to identify the party eect while xing voter preferences. [START_REF] Lee | Regression discontinuity designs in economics[END_REF] and [START_REF] Cattaneo | A practical introduction to regression discontinuity designs: Foundations[END_REF] show that this approach represents a quasi-random variation in party winners, because, as long as there is some unpredictability in voting behavior, when the race is very tight, the identity of the winning party is likely to be determined by pure chance. We restrict our sample to the 1,626 municipalities which display LW and RW opponents during the 2014 municipal elections. More precisely, the winner and runner-up have distinct parties. The treatment25 consists in a LW mayor being elected. The running variable is thus the LW versus RW margin, denoted LvsR, computed as the dierence between the score of the LW and RW candidates. If LvsR>0 the LW candidate is elected, otherwise the RW wins the election. The cuto is zero and LvsR lies26 between -100% and +100%. Since the incumbent's party might matter, we split the total sample according to the mayor's party in the previous municipal election in 2008 [START_REF] Caughey | Elections and the regression discontinuity design: Lessons from close US house races, 19422008[END_REF]).

The results in table 2 and gure 1 show that municipalities that were LW in 2008 and remained LW in 2014 in a razor-thin election spent 58 e more than those which shifted to RW. This validates the existence of a party eect on municipal wage bill around the cut-o. The conditions under which the continuity-based RD design is valid are commented in the appendix 9.1. Robust standard errors are used and adjusted for clusters (municipality level) for the period 2014-2016. We display bias-corrected and robust 90% condence intervals in brackets. We report the size of the MSE-optimal bandwidth (h) for point estimation. The eective sample size within the bandwidth reads as follows: a+b means a (resp. b) observations between -h and 0 (resp. between 0 and +h).

Endogeneity issue

We now tackle the endogeneity issue. First, we address the case of the grants received by French municipalities from the central government. Though they are assumed to be determined thanks to an ocial formula in dierent countries, a part of the literature points out a discretion in the allocation of intergorvernmental transfers as mentionned earlier. As far as France is concerned, the PirèsBeaune and Germain (2015) report27 lamented the opacity of the allocation process. This leads us to take the view that the grant from the central state could be endogenous. Second, in light of the existing relationships between municipalities and their IMC bodies (e.g. personnel transfers), the IMC wage bill is also suspected to be endogenous.

Testing the grant formula

As a rst step, we run year by year regressions using the grant formula. We regress the total grant (in logarithm) on population (in logarithm) and other individual municipal characteristics discussed in section 3.1. The results presented in the appendix (see table 18) show that the R 2 surprisingly changes: from 0.91 between 2011 and 2014, it decreases sharply in 2015 and eventually reaches 0.30 in 2018. This is all the more striking in that the departure starts in 2015 and coincides with the CRFP reform (the planned reduction in grant). This fuels the claim (PirèsBeaune and Germain ( 2015)) that the grant is allocated in a discretionary way. We can actually show that the CRFP has been thwarted by a partisan eect.

Evidencing a partisan eect on the grant

From our sample data, we get the following descriptive gure representing the evolution of the averaged grant per inhabitant (in 2018 e) according to the mayor's party aliation 28 . Figure 2 shows that LW municipalities receive more, on average, than those which are RW. This dierence is statistically signicant for each year (see table 19 in the appendix). The gure displays the cut in grant from 2014 and an increasing gap between LW and RW municipalities. That the dashed (LW municipalities) curve is above the solid (RW) one could be attributed to the equalizing objective of the grant formula (worse wealth conditions, and/or more unemployment, population in need of subsidies). The widening gap could be explained by a deterioration in the economic and demographic conditions in LW municipalities. Suspecting it could be due to a partisan eect, we therefore test a possible alignment eect channeled through the grant allocation. We use the procedure provided by Solé-Ollé and Sorribas-Navarro ( 2008), called time dierence-in-dierences, which consists in collecting data on the grants allocated by the central government in successive terms of oce, to estimate the eects of changes in alignment on changes in grants. We dene an aligned municipality as having the same party aliation as the majority of the National Assembly29 . The legislative elections were held in 2007, 2012 and 2017 and led respectively to a "blue" majority (RW) in 2007 and a "pink" majority (LW) in 2012. In 2017, President Macron30 came into oce and the national assembly was neither "blue" nor "pink". Control variables: Tax-Rev, Income, Unemp, Young and Elderly. Control variables are in logarithm and rst-dierenced.

We adapt the Solé-Ollé and Sorribas-Navarro ( 2008) procedure to our setting and consider the grant received in 2011 (preceding the 2012 legislative elections) and the grant received in 2016 (right before the 2017 legislative elections), and compute the corresponding grant variation. The dummy variable Align takes value 1 (resp. 0) for aligned (resp. unaligned) municipalities. We compute the change in the alignment status which takes values of 1, 0 or -1. ∆Align = 1 corresponds to LW municipalities which remained LW (there are 845) and which status shifted from unaligned (in 2011) to aligned (in 2016). Similarly, ∆Align = -1 describes RW municipalities (aligned in 2011) which remained RW (unaligned in 2016) (there are 1141). Finally, ∆Align = 0 means that the status is unchanged and concerns 500 municipalities. The change in alignment status is therefore only due to a change in the majority of the National Assembly as the mayor's party is unchanged.

We regress the change in grant on the change in alignment status controlling for the variables used in the grant formula: centrality, touristic area, land area and mountain localization and the changes in respectively the municipality population, tax revenues, median income, unemployment rate and population structure. Table 3 gives the results and suggests that partisan alignment between a municipality and the central government has a statistically signicant impact on the received grant.

As the coecient is positive, a shift from unaligned (resp. aligned) to aligned (resp. unaligned) status leads to an increase (resp. decrease) in the grant change. This means that for two municipalities that have the same demographic, economic and scal char-acteristics, the alignment status is decisive in the received grant. The interpretation is thus that the decrease in grant between 2011 and 2016 is lower by 4.44 e per inhabitant for aligned municipalities as compared to their unaligned counterparts.

In addition, in order to isolate the causal impact of the mayor's party on the grant while xing voter preferences, we run a close elections RDD proceeding as we did with the municipal wage bill. The results are given in table 4, where we focus on 2014 to 2016, that is right after 2014 municipal elections and before 2017 legislative elections.

It should be reminded that over this period, the National Assembly is LW.

Table 4 shows that LW municipalities in 2008 that are barely aligned with the central government in 2014 (LW) see their grant decrease by 59 e p.c. as compared to barely unaligned ones (RW) (or those that shift to the RW receive 59 e more). This result, illustrated in gure 3, suggests that leftist central government does not penalize former LW municipalities that lose by a narrow margin. It should be reminded that the 2014 municipal elections witnessed a huge victory of the RW party (the so called "blue wave"). There could be a strategic use of transfers to win them back, supporting the swing voter hypothesis [START_REF] Dixit | Redistributive politics and economic eciency[END_REF]). Moreover, the RW municipalities in 2008 that become barely aligned with the central government in 2014 (LW) obtain an additionnal 59e p.c as compared to barely unaligned ones (RW), as shown in gure 4. These results conrm the existence of a party eect in the allocation of central grant. Robust standard errors are used and adjusted for clusters (municipality level) for the period 2014-2016. We display bias-corrected and robust 90% condence intervals in brackets. We report the size of the MSE-optimal bandwidth (h) for point estimation. The eective sample size within the bandwidth reads as follows: a+b means a (resp. b) observations between -h and 0 (resp. between 0 and +h).

+ p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001.

Covariates: Centrality, Mountain, Touristic, Elderly and Income. We focus on 2014 to 2016 right after 2014 municipal elections and before 2017 legislative elections. Subsamples respectively LW and RW in 2008 elections.

Instrumenting the grant

In order to identify the causal eect of the central grant on a municipality's wage bill, we build an instrument dened as the average grant computed on its comparable neighbors. This strategy is inspired from the empirical industrial organization literature [START_REF] Hausman | Competitive Analysis with Dierenciated Products[END_REF] and [START_REF] Azar | Estimating Labor Market Power[END_REF]) and is used in other elds (e.g. in nance, [START_REF] Karpo | Do takeover defense indices measure takeover deterrence?[END_REF] and [START_REF] Gogineni | Vertical and horizontal agency problems in private rms: Ownership structure and operating performance[END_REF]). The conventional approach to selecting an appropriate instrument requires the following two conditions. First, the excluded instrument must be distributed independently of the error process (exogenous). Second, the excluded instrument must be suciently correlated with the included endogenous regressor (not weak). As a result, exclusion restriction is met when the excluded instrument is shown to exert indirect inuence on the dependent variable only through the endogenous regressor.

In what follows we give the arguments that support the exclusion restriction in our case. Our instrumental variable departs from the spatial econometrics neighbour/spatial lag instrument, therefore avoiding the simultaneity issues generated by spatial lag IVs [START_REF] Gibbons | Mostly pointless spatial econometrics[END_REF]). More specically, as the grant is allocated by the central government according to a formula, it is very unlikely that a grant attributed to a given municipality depends on the grant received by another, except within the IMC body to which it belongs. Indeed, the IMC scal regime (as already mentioned) might modify the grant amount received by its members. As a consequence, municipalities within an IMC body could be aected by common unobservable shocks. Since we consider as neighbors only municipalities outside the IMC body, our instrument can be reasonably considered as exogeneous (immune to the criticism made to Hausman-type instruments). Moreover as the grant instrument is computed on comparable neighbors (see below for the criteria used to dene the eligible neighbors) it can be seen as a relevant proxy for the given municipality's grant, since similar municipalities are expected to receive the same grant amount according to the formula. Therefore, this instrument will impact the municipal wage bill indirectly, only through the endogeneous grant.

Comparable neighbors are chosen following31 the grant allocation formula, which turns out to be biased by a partisan eect. The neighbors are the municipalities having the same population size, land area32 , operating within the same county33 , and having the same party aliation34 . The instrument for a given municipal grant is thus computed as the average grant of the surrounding comparable municipalities but excluding those which belong to the same IMC body35 . Figure 5 illustrates an example of how we compute the instrument at the county level, here, Ille-et-Vilaine. 54 municipalities of our sample are plotted according to their grant levels. The IMC bodies frontiers are in red while the county border is in grey. Consider the case of the Redon municipality, located at the south-west of the county. In 2018, it has a population of 9151 inhabitants, a land area of 1509 hectares and its mayor is RW. To instrument the grant of Redon, we consider cities that are comparable in terms of population, land area and party aliation but excluding those municipalities within the same IMC body (CA Redon agglomération). As a result, we nd two neighbors36 for Redon: Dol-de-Bretagne (located at the south-east of Saint-Malo) and Saint-Grégoire (in the same IMC as Rennes).

Instrumenting the IMC wage bill

Proceeding in the same way, we construct an instrument for the IMC wage bill to measure its causal impact on municipal wage bill. We now give reasons why we believe the exclusion restriction is satised. First, as the wage bill is concerned, the employment zones (EZ) are relevant to consider since they reect local labor markets. The EZs are geographical zones 37 in which the workers live and work and where rms can nd a large share of their labor force. IMCs within a same EZ are therefore likely to be aected by local common shocks (i.e., specic to the EZ). In order for the instrument to be exogeneous, we select IMC neighbors outside this geographic area. Moreover as the IMC wage bill instrument is calculated on comparable neighbors it can be seen as a good proxy for the given IMC wage bill: IMCs that are alike are expected to have a similar personnel expenditure 38 . As a result, the instrument will impact the municipal wage bill indirectly, only through the endogeneous IMC wage bill. We exploit the IMC bodies map 39 and employment zones (EZ) partition 40 . The wage bill of a given IMC is instrumented by the average wage bill computed on the neighboring comparable IMC bodies. The latter consist of the IMC bodies within the same county, of the same size 41 , the same scal regime, but excluding the IMCs part of the same EZ as the considered IMC body. As an illustration, we represent in gures 6 and 7 respectively the 4 EZs and the 17 IMCs which cover the Aveyron county. It is interesting to note that the Figeac EZ spreads over two counties, Lot and Aveyron, escaping the administrative borders. Similarly the Villefranche de Rouergue EZ spreads over Aveyron and Tarn-et-Garonne counties. As an example described by gure 8, consider the IMC CC Saint Aricain, Roquefort, Sept Vallons, located at the south-east of the county and part of the Millau EZ. It turns out to have ve comparable neighbors 42 located at the north of the county and all nested in the Rodez EZ. 37 We use the 2010 geographical partition, produced by INSEE, that provides information for 304 EZs in Metropolitan France. 38 Appendix 9.3 shows that the neighboring environment indeed matters. 39 The number of IMC bodies decreased over the period from 2,599 in 2011 to 1,264 in 2018. 40 As the two maps are provided separately, we allocate each IMC body to the EZ where the IMC chief town is located. 41 We consider four categories for the IMC population size: under 5,000; between 5,000 and 10,000; between 10,000 and 20,000 and over 20,000 inhabitants. 42 The number of neighbors is variable across IMC bodies since French counties are heterogenous for dierent reasons. The number of EZs and the number of IMC bodies vary accros counties as well as IMC population size and tax regime. If no neighbor satisfying the 3 criteria is found for a given IMC body, the rule is relaxed to allow for 2 criteria. In such a case, we choose as neighbors IMCs in the same county that have the same scal regime.

Results

We choose a log-linear specication 43 of the relationship between the municipal wage bill, denoted W M, and the regressors discussed above:

ln(W M it ) = β W I ln(W I it ) + β G ln(G it ) + β G 1418 ln(G it ) * d 1418 + j γ j P ol j it +β T ln(T it ) + β Y ln(Y it ) + β U ln(U it ) + k δ k ln(X k it ) + u i + it (1)
where i denotes the municipality index, t denotes time and u i refers to the individual municipal eect. The municipality being part of an IMC, we consider the IMC wage bill denoted by W I 44 . The per capita grant is denoted G and we introduce an interaction term G * d 1418 to count for the grant decline from 2014 onwards. We introduce the variables usually considered in the political economy literature 45 . They are denoted P ol and refer alternatively to mayors' party aliations (a dummy we call RW ), the margin of victory (M oV )dened as the dierence between the share of votes cast for the winning candidate and the second-place candidate and their interaction 43 This makes it possible to directly interpret the coecients as elasticities. 44 On average 2.5% of municipalities are not in an IMC, with a larger share at the beginning of the period (6.6% in 2011, 1.7% until 2015 and 0.08% in 2016). For these municipalities W I is not available. To avoid excluding them from the sample we assign 0 to ln(W I).

45 Part of the empirical literature uses the GMM method with the lagged endogenous variable as a regressor to count for persistence in cycles. We choose the IV-FE method allowing for the use of an original instrumentation. term M oV * RW . The partisan alignment is introduced via the grant instrumentation. The opportunistic hypothesis is tested thanks to time dummies: the election year d 2014 and the preceding year d 2013 .

21

Accepted manuscript / Final version

T represents the per capita tax revenues. We also control for the principal characteristics of the municipalities. We consider the households' median income Y, the unemployment rate U as well as the population, both in density and structure (respective shares of young and elderly). Finally, we introduce regional dummies to capture specic regional features 46 . Table 5 presents the estimation of equation ( 1) using six dierent models. Model (1) corresponds to the pooled OLS method ignoring the panel structure of our sample. Model ( 2) is a xed eect (FE) model using the within method and neglects the endogeneity of W I and G. Model (3) (resp. model ( 4)) is a FE model, using an IV method instrumenting W I only (resp. G only). Models ( 5) and ( 6) are FE models instrumenting both the IMC wage bill W I and the grant G.

In models (1) to (3) the sample of 2,550 cities consists of the four categories of parties: LW, RW, far-right and other parties. In models ( 4) to ( 6), the grant instrumentation leads to losing observations as we consider only LW and RW parties resulting in 2,527 cities. Moreover instead of 20,216 observations (2,527*8 years) we have 18,002. Almost all of the lost observations are due to missing values in the DGFIP dataset, in particular the IMC wage bill is not always available despite the existence of the IMC body. The begining of the period is particularly concerned with missing values. In 2017 and 2018 almost no missing values are recorded. From the endogeneity test of endogenous regressors, Chi2(3)=63.838 and p=0.00, we can conclude that both W I and G are endogenous regressors. We therefore concentrate on the results of models ( 5) and ( 6) 47 .

Before stating our main results, we display in table 21 in the appendix the rst stage regressions corresponding to model (5). We nd a highly signicant eect of each of the instruments (W I, G and G 1418 ) on its associated endogenous regressor. Moreover, the Sanderson-Windmeijer test for under-identication concludes that each excluded instrument is relevant, i.e., correlated with the endogenous regressor.

We comment now on the main results of models ( 5) and ( 6). We rst nd that a substitution eect governs the two tier public wage bills. The coecient of W I is negative and highly signicant 48 : when the IMC wage bill increases, the municipality decreases its own. We also show that cuts in grants lead to cuts in municipal wage bills. The grant-elasticity of the municipal wage bill is positive 49 but lessened by the implementation of the planned 46 The regions map has been modied by the 2015 Act that reduced the number of metropolitan regions from 22 to 13. 47 We also run the Anderson-Rubin Wald test for the joint signicance of the endogenous regressors and nd Chi2(3)=113.39 and p=0.00 so that we reject the null hypothesis of no joint signicance. 48 Treating the endogeneity of W I changes the magnitude of its coecient: it is more than four times higher in model (5) than in model (2). 49 Instrumenting the grant also increases its coecient: it is almost three times higher in model ( 5) grant reduction from 2014. Therefore the decline in G generated a decrease in municipal wage bills all other things being equal. This measure seemed to have met the expected objective to contain expenditures at the local level. Faced with this cut in their grant, municipalities resisted, as the grant-elasticity is smaller after than before the reform. However, partisanship puts a brake on this. To show this, we run another version of model ( 6) dierentiating between the impact of the grant reduction according to the mayor's party aliation. The results of table 6 show that, after the reform, the grantelasticity of the municipal wage bill is smaller for LW municipalities than those which are RW. More precisely, the grant-elasticity of the municipal wage bill is equal to 0.0607 after the reform for LW and 0.0721 for RW municipalities 50 . This dierence is highly signicant. LW municipalitieswhich turn out to be aligned during the period concerned with the CRFP reformresist more to the cut in grant than those on the RW. As a result, for municipalities comparable as regards their demographic, economic and scal features, we nd that a 10% decrease in annual grant leads to 0.607% and 0.721% decreases in respectively LW and RW municipalities' wage bills. This should be contrasted with the grant-elasticity before the reform: a 10% decrease in annual grant leads to a 1.07% decrease in the municipal wage bill. Finally, our results support both the opportunistic and partisan hypotheses. Models ( 5) and ( 6) in table 5 reveal rst the existence of an opportunistic eect, since the coecient of d 2013 is positive and signicant. Just before the election, the municipal wage bill reaches a peak but the election year d 2014 has a null impact in model ( 5) and a weakly signicant negative impact in model ( 6), probably because it is a transition year 51 . We also estimate our models ( 5) and ( 6) to take the whole electoral timetable into account using time dummies from 2012 to 2018 (see table 23 in the appendix). Compared to 2011, the reference year, the negative sign indicates that the personnel expenditures decrease from 2014 onward, which may capture the eciency of the cut in grant. Only the 2013 coecient has a positive sign conrming the opportunistic eect. We are not be able to display the intensity of the electoral cycle since the coecient of such time dummies are dicult to interpret in a FE model. Moreover, model ( 5) also shows that a partisan eect is at play, as evidenced by a negative sign on the dummy RW , and that, regardless of the party aliation, a greater margin of victory leads to reductions in the municipal wage bill 52 . Moreover, model (6) shows that for RW municipalities a greater margin of victory increases the partisan eect: the coecient of M oV * RW is negative and highly statistically signicant.

Though it is not central to the analysis, our data do not evidence a ypaper eect (contrasting with Baskaran ( 2016)) since the coecient associated to the median income Y is signicant and much larger than the coecient of G. The coecient associated than in model (2). 50 Using column All Municipalities of table 6, the after-reform grant-elasticity is respectively 0.0607 = 0.107 -0.0463 for LW and 0.0721 = 0.107 -0.0463 + 0.0114 for RW. 51 We also nd that the opportunitic eect does not vary with the degree of electoral competition. Nor does it change with the party aliation. See table 22 in the appendix. 52 We do not show any non-linearity of the margin of victory as shown theoretically by [START_REF] Hanusch | Popularity, Polarization, and Political Budget Cycles[END_REF] and evidenced on French data by [START_REF] Boukari | The Political Budget Cycle in French Municipal Elections: Unexpected Nonlinear Eects[END_REF]. See table 22 in the appendix. with population density is negative and statistically signicant, reecting economies of density in local public service provision (taking implicitely the wage bill as a proxy for the production costs). Finally, wage bills increase with the unemployment rate, suggesting that mayors either hire more or pay more when local unemployment53 increases.

Robustness checks

To provide for external validity of our results, we extend our analysis to other municipal economic outcomes. We consider current, investment and total expenditures in order to produce a richer picture in response to IMC and central grant. First as for the IMC eect, table 7 shows that a substitution eect is at work from 2015 onwards for the current expenditures regardless of the party. Next, we nd a complementary eect on investment expenditures, suggesting the existence of IMC projects adding public services to those already delivered by municipality members. Moreover, the IMC elasticity for total expenditures is positive at the beginning of the period and is subsequently reduced but still positive from 2015 onwards (the substitution on current expenditures is slightly dominated by the complementarity on investment expenditures ).

Second the grant elasticity of current expenditure is null when considering the whole sample. This impact of the grant on current expenditures is better captured on subsamples according to the mayor's party. The grant elasticity of current expenditures is positive for RW municipalities while it is null in LW ones, whether before or after the public nance recovery plan. The downsizing that LW municipalities accept on personnel expenditures vanishes when considering the current expenditures. The grant elasticity is negative for investment expenditures regardless of the party and positive for total expenditures only from 2015.

As a conclusion, these results bring additional insights as for the IMC and the grant eects on other municipal expenses. We show in particular that the objective of curbing the increasing trend on total expenditures seems to be achieved using the cuts in grant channel. Our main results on IMC eects on municipal wage bill hold studying current expenditures. The results on the grant eects on municipal wage bill are robust considering both current and total expenditures. Finally, additional data are needed to understand the mechanisms underlying investment expenditures. All variables in logarithm except dummies. In the third column R 2 overall is reported as the R 2 within is negative because of IV estimation procedure.

The present contribution focuses on municipal public personnel expenditures that have been on a long term rising trend. Rationalization in expenses at the local public government level is a justication for municipalities' mandatory membership to IMC bodies.

In that respect, the objective has been met as we nd a substitution eect between the two tier wage bills. The other channel used, the cuts in central grant, turns out to be partially eective as the municipal wage bill decreases with the cuts in grant. However, this eect is hindered by partisanship and strategic use of transfers by the central government. To get a richer view of the impact of grants and IMC on municipal outcomes, we explore alternatively current, investment and total expenditures. Our main results still hold for current and total expenditures as far as the grant impact is concerned.

In light of our ndings, evidencing a substitution eect is not enough to conclude regarding the IMC eect on the local public sector size. Considering the consolidated level (IMC body and its members), the IMC eect is ambiguous and needs to be claried. Moreover, the cuts in grant seem to be a promising avenue in containing the rise in public spendings. But the partisan-distorted allocation of the grant, in spite of its formula-based denition, calls obviously for more transparency. The grant allocation deserves to be more thoroughly studied owing to the formula complexity. For instance, it would be interesting to disaggregate the grant amount into its dierent components base grant, compensating part, equalizing partand explore through which channel the distorsion operates.

Our results being contingent on the data availability, related questions still deserve attention. Distinguishing between dierent types of personnel (occupation, status (private vs tenured) and part-time vs full-time) could allow us to test whether a cut in grant leads to a uniform adjustment in personnel expenditures. Moreover, there is a need to investigate the strategic political interactions between the IMC body and its members. Finally, the bonus-malus mechanism adopted for the years 2018-2022, which introduces a budgetary binding rule for large municipalities, is another way of extending our work. (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)

Note:

The signicance level of each correlation coecient is reported in parentheses.

Validity of Continuity-based RDD

To check the validity of RDD, we rst test the continuity of the score density around the cuto. We implement the McCrary (2008) manipulation density test where the null hypothesis is that there is no manipulation of the density at the cuto. Failing to reject the null oers evidence supporting the validity of the RDD. Figures 9, 10, 11 and table 10 show that we can not reject the null neither on the total sample nor on the subsamples 54 .

Figure 9 Figure 10 Figure 11 54 Recall that we split the total sample according to the mayor's party in the previous municipal election in 2008. Tables 15, 16 and 17 examine treatment eects at placebo cuto values for our two outcomes. They show that there is no evidence of discontinuity away from the cuto in tables 15 and 17 conrming that we can be condent in our RDD results. However, table 16 calls for caution in the interpretation.

+

  p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001. Covariates: Population density, Young, Elderly and Income. We focus on 2014 to 2016 right after 2014 municipal elections and before 2017 legislative elections. Subsamples respectively LW and RW in 2008 elections.

Figure 1

 1 Figure 1

Figure 2 :

 2 Figure 2: Average grant per inhabitant according to the mayor's party

  Figure 3Figure4

Figure 5 :

 5 Figure 5: 2018 Municipal grant per inhabitant in euros. Ille-et-Vilaine county.

Figure 6 :

 6 Figure 6: Employment zones. Aveyron county

  IV-WI-FE (4) IV-G-FE (5) IV-WI-G-FE (6) IV-WI-

  Figure 12

  Figure 15

  parentheses. OLS estimation. + p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001 Because of missing values the number of observations varies across years.

  and Di Porto et al. (2017) both analyze the determinants of joining an IMC body. Di Porto et al. (2017) adopt the spatial economics literature and use a control function approach to develop a binary discrete choice model with spatial interactions. They show that a municipality's decision to cooperate over the provision of local public goods depends on the decisions made by its neighbours. Tricaud (2021) exploits a natural experimentthe 2010 Act and evidences how the determinants of the reluctance to cooperate vary across municipalities. Using a DID strategy, she nds that urban municipalities forced to integrate experienced a large increase in construction while rural municipalities ended up with fewer local public services. The same eects are not found for municipalities that had voluntarily integrated prior to the law. Her results support the fact that municipalities resisted to avoid the local costs of integration.

Table 1 :

 1 Variables and sources

	Variables	Sources
	Municipal and IMC wage bills	Ministry of Finance (DGFIP)
	Central Grant and Tax revenues	Ministry of Finance (DGFIP)
	IMC members and IMC maps	Ministry of Home Aairs (DGCL)
	Median income	National Public Statistics Institute (INSEE)
	Population, Young and Elderly, Density National Public Statistics Institute (INSEE)
	Unemployment	Ministry of Labour (DARES)
	Election results

Table 2 :

 2 Close elections RDD. Outcome: Municipal wage bill. Running variable: LvsR margin in 2014 municipal elections

		Total sample LW Subsample	RW Subsample
	2014
	RD estimate	0.002	0.025	0.018
	90% CI	[-0.045;0.068] [-0.041;0.113]	[-0.123;0.194]
	Optimal BW	20.28	12.69	18.32
	Eective obs.	432+301	193+179	130+43
	Observations	1,626	907	718
	2015
	RD estimate	0.005	0.032	0.030
	90% CI	[-0.041;0.071] [-0.032;0.122]	[-0.116; 0.213]
	Optimal BW	20.12	11.84	18.27
	Eective obs.	431+299	183+167	130+43
	Observations	1,626	907	718
	2016
	RD estimate	0.010	0.035	0.034
	90% CI	[-0.037;0.079] [-0.031;0.128]	[-0.113;0.219]
	Optimal BW	18.80	11.61	18.47
	Eective obs.	401+284	178+164	131+43
	Observations	1,622	907	715
	2014-2016 without covariates
	RD estimate	0.010	0.034	0.034
	90% CI	[-0.027;0.065] [-0.016;0.109]	[-0.074;0.177 ]
	Optimal BW	18.23	10.97	17.31
	Eective obs.	1,178+831	507+462	375+126
	Observations	4,874	2,721	2,151
	2014-2016 with covariates
	RD estimate		0.058 *	-0.018
	90% CI		[0.016;0.127]	[-0.091;0.097 ]
	Optimal BW		10.30	11.62
	Eective obs.		486+441	246+108
	Observations		2,721	2,151
	We report RD point estimates and use a conventional local linear polynomial
	and a triangular Kernel with MSE-optimal bandwidth for point estimation.

Table 3 :

 3 Dependent variable: Change in per capita Grant between 2011 and 2016. Partisan alignment evidenced.

		∆ per capita Grant in thousand e
	∆ Align	0.00444 * *
		(0.00139)
	∆ Pop	0.000000320
		(0.00000216)
	Centrality	0.0254 * * *
		(0.00270)
	Tourist	-0.0368 * * *
		(0.00445)
	Land_area	-0.0000252
		(0.0000407)
	Land_area_Mount	-0.000324 *
		(0.000138)
	Control variables	yes
	N	2,486
	R 2	0.274

Robust standard errors in parentheses. OLS estimation.

+ p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001.

Table 4 :

 4 Close elections RDD. Outcome: p.c. Grant. Running variable: LvsR margin in 2014 municipal elections.

		Total sample LW Subsample	RW Subsample
	2014
	RD estimate	-0.025	-0.057 +	0.053
	90% CI	[ -0.075;0.021] [-0.116;-0.007]	[-0.073;0.199]
	Optimal BW	23.92	17.75	21.47
	Eective obs.	492+346	261+231	161+44
	Observations	1,626	907	718
	2015
	RD estimate	-0.027	-0.057 +	0.050
	90% CI	[-0.076;0.018] [-0.114;-0.009]	[-0.076;0.184]
	Optimal BW	24.31	18.45	21.20
	Eective obs.	503+348	265+239	159+44
	Observations	1,626	907	718
	2016
	RD estimate	-0.033	-0.061 *	0.035
	90% CI	[-0.083;0.010] [-0.119;-0.011]	[-0.089;0.168]
	Optimal BW	23.69	17.63	20.01
	Eective obs.	486+344	260+228	149+44
	Observations	1,622	907	715
	2014-2016 without covariates
	RD estimate	-0.029	-0.059 *	0.048
	90% CI	[-0.070;0.008] [-0.110;-0.016]	[-0.061;0.166]
	Optimal BW	23.18	17.37	19.50
	Eective obs.	1446+1017	771+681	435+129
	Observations	4,874	2,721	2,151
	2014-2016 with covariates
	RD estimate			0.059 +
	90% CI			[0.001;0.130]
	Optimal BW			14.61
	Eective obs.			306+117
	Observations			2,151
	We report RD point estimates and use a conventional 2-order local polynomial
	and a triangular Kernel with MSE-optimal bandwidth for point estimation.

Table 5 :

 5 Dependent variable: municipal wage bill. Main results

	(1) P-OLS

Table 6 :

 6 Dependent variable: Municipal wage bill. Versions of model (6) according to the mayor's party.

		All municipalities Right-wing Left-wing
	W I	-0.0229 * *	-0.0248 *	-0.0222 +
		(0.00799)	(0.0111)	(0.0132)
	Grant (G)	0.107 * *	0.127 *	0.0632 *
		(0.0326)	(0.0498)	(0.0262)
	Grant*d 1418	-0.0463 * * *	-0.0359 * * * -0.0430 * * *
		(0.00611)	(0.00680)	(0.00805)
	Grant*d 1418 * RW	0.0114 * * *
		(0.00276)
	M oV		-0.00296	-0.00363
			(0.00210)	(0.00232)
	M oV * RW	-0.00428 *
		(0.00190)
	d 2013	0.0162 * * *	0.00788 +	0.0246 * *
		(0.00367)	(0.00476)	(0.00758)
	d 2014	-0.0107 +	-0.0145 +	-0.000857
		(0.00585)	(0.00874)	(0.00611)
	Control Variables	yes	yes	yes
	Regional Dummies	yes	yes	yes
	N	18,002	10,330	7,672
	Cities	2,527	1,609	1,351
	R 2	0.0867	0.0666	0.1817
	Standard errors (in parentheses) are clustered at the municipality level.
	+ p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001. IV-FE estimation.
	Control variables: Tax-Rev, Income, Unemp, Density, Young, Elderly.
	All variables in logarithm except dummies.

Table 7 :

 7 Alternative dependent variables using model (6). p < 0.05, * * p < 0.01, * * * p < 0.001. IV-FE estimation. Control variables: Tax-Rev, Income, Unemp, Density, Young, Elderly.

		CurExp	CurExp	CurExp	InvExp	TotExp
		All	Right-wing Left-wing	All	All
	CurExpI	0.0108	0.00764	0.0193
		(0.0100)	(0.00887)	(0.0223)
	CurExpI* d 1518	-0.0222 * *	-0.0265 * *	-0.0289 *
		(0.00691) (0.00995)	(0.0143)
	InvExpI				0.0484 *
					(0.0243)
	InvExpI*d 1518				-0.00602
					(0.0228)
	TotExpI					0.0908 +
						(0.0518)
	TotExpI*d 1518					-0.0663 *
						(0.0318)
	Grant (G)	-0.00851	0.0675 +	-0.107	-0.438 +	-0.457
		(0.0693)	(0.0399)	(0.155)	(0.228)	(0.314)
	Grant*d 1518	0.00559	-0.00162	0.0189	0.187 * * * 0.204 * * *
		(0.0126)	(0.0110)	(0.0325) (0.0466) (0.0534)
	M oV		-0.00436 * 0.000127
			(0.00194) (0.00275)
	M oV * RW	-0.00457 * *			-0.000270 -0.00502
		(0.00148)			(0.00596) (0.00662)
	d 2013	0.00497	0.00259	0.00423	0.0341 *	0.0263
		(0.00421) (0.00624)	(0.0101) (0.0165) (0.0216)
	d 2014	0.00932 +	0.00613	0.0117	-0.155 * * * -0.161 * * *
		(0.00560) (0.00800)	(0.0148) (0.0222) (0.0282)
	Control Variables	yes	yes	yes	yes	yes
	Regional Dummies	yes	yes	yes	yes	yes
	N	17,956	10,312	7,644	17,956	17,956
	Cities	2,527	1,608	1,351	2,527	2,527
	R 2	0.1076	0.1065	0.0774	0.0031	0.0045
	Standard errors (in parentheses) are clustered at the municipality level.

+ p < 0.10, *

Table 9 :

 9 Cross-correlation table

	Variables WM WI Grant MoV Tax_Rev Income Unemp Density Young Senior	WM 1.000	WI -0.036 1.000	(0.000)	Grant 0.249 -0.121 1.000	(0.000) (0.000)	MoV 0.045 -0.023 -0.023 1.000	(0.000) (0.002) (0.002)	Tax_Rev 0.696 -0.007 0.209 0.007 1.000	(0.000) (0.330) (0.000) (0.321)	Income -0.053 -0.002 -0.464 0.043 0.131 1.000	(0.000) (0.743) (0.000) (0.000) (0.000)	Unemp 0.265 0.065 0.360 -0.037 0.076 -0.690 1.000	(0.000) (0.000) (0.000) (0.000) (0.000) (0.000)	Density 0.275 -0.072 0.110 0.056 0.134 0.115 0.043 1.000	(0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)	Young -0.088 -0.111 -0.017 0.017 -0.232 -0.020 -0.048 0.154 1.000	(0.000) (0.000) (0.014) (0.022) (0.000) (0.004) (0.000) (0.000)	Senior 0.052 0.040 0.149 -0.035 0.158 -0.200 0.180 -0.231 -0.792 1.000

Table 12 :

 12 Sensitivity to bandwidth. Outcome: Municipal wage bill. Running variable: LvsR margin. LW Subsample. 2014-2016 period with covariates.

	BW	RD estimate	Bias-corrected	Eective
			and robust 90% CI observations
	5	0.074	[-0.007;0.175]	288+213
	8	0.056 +	[0.001;0.156]	402+345
	MSE-optimal=10.30	0.058 *	[0.016;0.127]	486+441
	15	0.030 *	[0.014;0.134]	678+606
	20	0.014 +	[0.002;0.110]	836+765
	30	0.004	[-0.014;0.077]	983+1086

Table 13 :

 13 Sensitivity to bandwidth. Outcome: p.c. Grant. Running variable: LvsR margin. LW Subsample 2014-2016 period without covariates.

	BW	RD estimate	Bias-corrected	Eective
			and robust 90% CI observations
	8	-0.060 +	[-0.139;-0.003]	402+345
	12	-0.067	[-0.120;0.001]	555+501
	MSE-optimal=17.37	-0.059 *	[-0.110;-0.016]	771+681
	20	-0.056 *	[-0.117;-0.017]	837+765
	25	-0.051 *	[-0.109;-0.018]	942+936

Table 14 :

 14 Sensitivity to bandwidth. Outcome: p.c. Grant. Running variable: LvsR margin. RW Subsample. 2014-2016 period with covariates.

	BW	RD estimate	Bias-corrected	Eective
			and robust 90% CI observations
	5	0.106 * *	[0.067;0.208]	105+54
	10	0.071 * *	[0.044;0.188]	189+99
	MSE-optimal=14.61	0.059 +	[0.001;0.130]	306+117
	20	0.049 +	[0.001;0.134]	444+132
	25	0.045	[-0.007;0.122]	582+138

39

Accepted manuscript / Final version

Table 15 :

 15 Placebo cutos. Outcome: Municipal wage bill. Running variable: LvsR margin. LW Subsample. 2014-2016 period with covariates.

	Alternative MSE-optimal BW RD estimate	Bias-corrected	Eective
	cuto			and robust 90% CI observations
	-3	14.48	-0.019	[-0.065;0.030]	588+669
	-2	11.50	0.007	[-0.035;0.068]	492+546
	-1	14.48	-0.017	[-0.063;0.037]	633+651
	0	10.30	0.058	[0.016;0.127]	486+441
	1	14.43	0.013	[-0.032;0.074]	663+579
	2	17.24	-0.013	[-0.061;0.038]	768+660
	3	19.70	-0.017	[-0.066;0.030]	873+738

Table 16 :

 16 Placebo cutos. Outcome: p.c. Grant. Running variable: LvsR margin. LW Subsample. 2014-2016 period without covariates.

	Alternative MSE-optimal BW RD estimate	Bias-corrected	Eective
	cuto			and robust 90% CI observations
	-3	13.80	0.033	[-0.019;0.083]	561+642
	-2	11.04	-0.074	[-0.133;-0.038]	462+525
	-1	15.11	-0.052	[-0.106;-0.010]	657+654
	0	17.37	-0.059	[-0.110;-0.016]	771+681
	1	22.92	-0.025	[-0.071;0.019]	933+858
	2	16.43	-0.001	[-0.039;0.051]	735+636
	3	16.40	0.008	[-0.026;0.055]	756+609

Table 17 :

 17 Placebo cutos. Outcome: p.c. Grant. Running variable: LvsR margin. RW Subsample. 2014-2016 period with covariates.

	Alternative MSE-optimal BW RD estimate	Bias-corrected	Eective
	cuto			and robust 90% CI observations
	-3	12.82	-0.010	[-0.055;0.046]	273+153
	-2	12.79	0.018	[-0.030;0.079]	267+144
	-1	15.35	0.016	[-0.029;0.070]	330+132
	0	14.61	0.059	[0.001;0.130]	306+117
	1	9.81	-0.070	[-0.199;0.016]	201+81
	2	13.41	-0.046	[-0.128;0.012]	264+93
	3	16.87	0.020	[-0.039;0.069]	324+102

Table 18 :

 18 Dependent variable: total grant (in log). Testing the grant formula.

Table 21 :

 21 First stage regressions of model (5). Endogenous regressors: W I, G, G 1418 p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001. IV-FE estimation. Standard errors clustered at the municipality level. All variables in logarithm except dummies.

		W I	G	G 1418
	W I	0.8555 * * *	0.0762 * * *	0.0585 * * *
		(0.0518)	(0.0100)	(0.0124)
	G	0.2148 * * *	0.0154	-0.7171 * * *
		(0.0529)	(0.0295)	(0.0414)
	G 1418	-0.1531 * * *	0.0937 * * *	0.8705 * * *
		(0.0414)	(0.0121)	(0.0196)
	Exogenous regressors	yes	yes	yes
	Regional dummies	yes	yes	yes
	N	18,002	18,002	18,002
	Cities	2,527	2,527	2,527
	R 2	0.2016	0.4120	0.8384
	Under-identication
	SW χ 2 (1)	491.68 (p=0.00) 285.45 (p=0.00) 587.26 (p=0.00)
	Endogeneity test
	χ 2 (1)	63.57 (p=0.00) 3.84 (p=0.0502) 3.40 (p=0.065)

+

Table 22 :

 22 Dependent variable: Municipal wage bill. Further explorations of political eects on model (5). p < 0.05, * * p < 0.01, * * * p < 0.001 Control variables: Tax-Rev, Income, Unemp, Density, Young, Elderly. IV-FE estimation. All variables are in logarithm except dummies.

		(1)	(2)	(3)
	W I	-0.0219 * * -0.0219 * *	-0.0219 * *
		(0.00788) (0.00788)	(0.00788)
	Grant (G)	0.102 * *	0.102 * *	0.103 * *
		(0.0320)	(0.0321)	(0.0321)
	Grant*d 1418	-0.0387 * * * -0.0387 * * *	-0.0389 * * *
		(0.00548) (0.00552)	(0.00552)
	RW	-0.0164 *	-0.0161 *	-0.0164 *
		(0.00660) (0.00677)	(0.00680)
	M oV	-0.00453 * * -0.00448 * *	-0.00188
		(0.00155) (0.00157)	(0.00286)
	d 2013	0.0158 * * *	0.0177 * *	0.0163 * * *
		(0.00461) (0.00548)	(0.00364)
	d 2014	-0.00877	-0.00877	-0.00897
		(0.00569) (0.00572)	(0.00570)
	d 2013 * RW	0.00102
		(0.00444)
	d 2013 * M oV		-0.000535
			(0.00168)
	M oV 2			-0.000809
				(0.000824)
	Control Variables	yes	yes	yes
	Regional Dummies	yes	yes	yes
	N	18,002	18,002	18,002
	Cities	2,527	2,527	2,527
	R 2	0.0918	0.0917	0.0914
	Standard errors (clustered at the municipal level) in parentheses

+ p < 0.10, *

Table 23 :

 23 Dependent variable: Municipal wage bill. Electoral cycle all year dummies on models (5) and (6). p < 0.05, * * p < 0.01, * * * p < 0.001 Control variables: Tax-Rev, Income, Unemp, Density, Young, Elderly. IV-FE estimation. All variables are in logarithm except dummies.

		model (5')	model (6')
	W I	-0.0236 *	-0.0236 *
		(0.00977)	(0.00977)
	Grant (G)	0.185 *	0.185 *
		(0.0886)	(0.0889)
	Grant*d 1418	-0.129 * *	-0.130 * *
		(0.0409)	(0.0410)
	RW	-0.0143 +
		(0.00731)
	M oV	-0.00477 * *
		(0.00163)
	M oV * RW		-0.00643 * *
			(0.00211)
	d 2012	0.00387	0.00390
		(0.00347)	(0.00346)
	d 2013	0.0201 * *	0.0201 * *
		(0.00738)	(0.00739)
	d 2014	-0.140 * *	-0.141 * *
		(0.0526)	(0.0527)
	d 2015	-0.130 * *	-0.130 * *
		(0.0479)	(0.0478)
	d 2016	-0.143 * *	-0.144 * *
		(0.0490)	(0.0489)
	d 2017	-0.129 * *	-0.130 * *
		(0.0455)	(0.0454)
	d 2018	-0.148 * *	-0.149 * * *
		(0.0450)	(0.0449)
	Control Variables	yes	yes
	Regional Dummies	yes	yes
	N	18,002	18,002
	Cities	2,527	2,527
	R 2	0.0787	0.0782

Standard errors (clustered at the municipal level) in parentheses.

+ p < 0.10, *

We nd a negative elasticity with a point estimate=-0.022 with a 95% condence interval [-0.037; -0.006].

In 2014 the bottom-up reimbursement of wage bills was much larger than the top-down one. Municipalities paid

million e to their IMC bodies, while IMC bodies paid 167 million e for the sta the municipalities lend them.5 Point estimate=0.102 with a 95% condence interval [0.039; 0.165].6 Point estimate=0.102-0.039 =0.063 and the dierence is highly signicant.

For comprehensive reviews, see[START_REF] Dubois | Political Business Cycles 40 Years after Nordhaus[END_REF] and[START_REF] Philips | Seeing the Forest through the Trees: A Meta-analysis of Political Budget Cycles[END_REF].

Strategic spending appear for highly visible policies that yield benets in the immediate: public employment, transportation and road infrastructure, road cleaning and maintenance, waste disposal and green areas.

Note that there are numerous, however contrasted, empirical results on budgetary decisions ma-

The principal jurisdictional types are the communautés de communes (CC) chosen in majority by municipalities in rural areas, the communautés d'agglomération (CA), the communautés urbaines (CU) and Metropoles preferred by municipalities in urban areas.

The 2015 Act increased the scope of mandatory transferred competencies.

The responsibility of some groups of competencies is shared between the three tiers of local governments (regions, counties and municipalities) leading to potential overlapping. The NOTre Act (2015) has contributed to clarify the allocation of competencies among the three tiers. On this issue, see Torre and Bourdin (2022).

15 CC (resp. CU and Metropoles) are the least (resp. most) integrated IMC bodies. According to the jurisdictional type, the IMC body may be in charge of some optional

competencies.16 Municipalities remain responsible for those competencies that have not be transferred (e.g. childcare, pre and elementary schools, care for the elderly).

No endogeneity could result from the timing of elections since election dates are xed and dened exogenously.

Socialists, communists, ecologists and far-left.

Conservatives and centrists.

Independents, regionalists and others without party aliation.

Far-left mayors were too few in our sample to be considered.

We divide the total personnel expenditure by the number of inhabitants.

The results of the 2014 municipal election are provided for municipalities of more than 1,000 inhabitants.

Population size may have either increased or decreased in following years.

We execute the RDD method following Cattaneo et al. (2019) RDD Foundations book.

In some municipalities there was a unique candidate.

A National Assembly report named after the representatives who authored it.

We restrict ourselves to LW and RW mayors since far-right and other parties weigh less than 5% in our sample.

The National Assembly has 577 representatives directly elected by the citizens for a ve-year term in single seat-constituencies.

He created a new political party LaRem (La République en Marche).

Considering all the criteria of the allocation rule would have been dicult as we need enough neighbors to compute the instrument.

We consider three population size sub-groups: below 5,000 inhabitants, between 5,000 and 10,000 and above 10,000. Similarly, we partitioned the land area into four sub-groups according to the three quartiles of the land area distribution.

There are 95 metropolitan counties. We do not compute a nation-wide instrument as it would result in municipalities having almost the same instrument. Taking the county ensures enough variability in the instrument.

In order to nd comparable neighbors, we restrict the grant instrument computation to LW and RW municipalities.

All things being equal (same county, population size, area) the grant computed on a LW neighborhood will be larger than that of a RW from 2013 on as the National Assembly is "pink".

The number of neighbors is variable across municipalities since French counties are heterogenous for dierent reasons. France has indeed rural and urban counties and these counties gather more or less municipalities, which sizes and areas vary. If no neighbor satisfying the 4 criteria is found for a given municipality, the rule is relaxed to allow for 3 criteria. In such a case, we choose as neighbors municipalities in the same county that have the same population size and the same party aliation.

On the relationship between unemployment and public employment see[START_REF] Caponi | Public employment policies and regional unemployment dierences[END_REF] and[START_REF] Faggio | The eect of public sector employment on local labour markets[END_REF].

Accepted manuscript / Final version

François, Etienne Farvaque and the participants at the for their helpful feedback on an earlier version of the manuscript. Our work received support from the CEPREMAP (Centre pour la Recherche Economique et ses Applications).

We use a triangular Kernel with MSE-optimal bandwidth. Subsamples respectively LW and RW in 2008 elections.

Next, we test the null treatment eect on predetermined covariates. Table 11 shows that the predetermined covariates do not dier systematically at the cuto.

Relevance of the IMC wage bill instrument

We investigate whether a change in a municipality's neighborhood in terms of the IMC wage bill has an impact on the wage bill of the IMC to which the municipality belongs.

To do so, we proceed as if the change in the environment resulted from a treatment and follow the Dierence-in-Dierences approach. The treatment is dened as the shift from a sober (low wage bill) to a lavish (large) IMC neighborhood. We consider a subsample comprising 360 municipalities whose IMC neighboorhood in 2011 is below the rst quartile of the instrument distribution, and observed in 2011 (before the treatment) and in 2018 (after). The control group brings together those 122 municipalities which remained below the rst quartile in 2018. The treated group is composed of 238 municipalities that shifted in 2018 from below the rst to above the third quartile. Table 20 gives the results of the di-in-di estimation. The coecient of the interaction term Lavish * 2018 is highly statistically signicant, conrming the change in the municipality environment matters. + p < 0.10, * p < 0.05, * * p < 0.01, * * * p < 0.001.