Public Fund Assignment through Project Evaluation

Abstract:

Public funds are allocated increasingly through dynamic mechanisms, such as project selection, and less through allocation formulas. While costly, potential benefits of project selection include better projects, less corruption and better targeted allocations. We challenge these benefits theoretically and test our arguments empirically by assessing an explanatory model of fund assignment. Our specific context involves the Polish 2004–06 Interregional Operational Programmes, with regions in charge of distributing European Union Structural Funds. Results suggest assignment to be largely captured by an easy-to-measure variable, population size. Assignment further seems to somewhat contradict overall programme purposes, potentially feeding intra-regional inequality. Co-payment requirements are a likely explanation.

These results challenge the three arguments in favour of project selection. On the other hand, further results support arguments in favour of project selection. While our proxy for personal links between assigning and receiving entities shows a significant result, it explains very little. Moreover, we did not find any impact of political ties. Overall the picture is mixed and our research is restricted to only three potential benefits of project selection.