Using a comprehensive database on successful and rejected applications for the European
Union's Structural and Cohesion Funds between 2004 and 2012 in Hungary, we study which
grant types are susceptible to political favoritism and how this is achieved. With
fixed-effects and matching estimators we study whether applicants from municipalities
with a mayor endorsed by the governing coalition won a higher grant value than applicants
where the mayor was affiliated with the opposition. We find limited evidence for such
a difference for total grant value, but in cases when the applicant is a public entity
or the purpose of the project is construction and, therefore, visible to voters and
thus may bring about electoral benefits, we do find effects of 16-21%. The decomposition
of the effect suggests that favoritism plays a role both in the application and the
decision making process as applicants from aligned townships apply in larger numbers
and have higher acceptance rates. When analyzing the effect of grants on votes, we
show that voters indeed reward construction and public projects but not the other
grant types. (C) 2016 Published by Elsevier B.V.