Gáspár Attila /CEU/
The public morals – public services tradeoff: Theory and evidence from Sharia regulations in Indonesia
Campaigning on value-based and highly divisive issues can serve as a cheaper alternative to provision of goods and services, so politicians have an economic incentive to cater to hardliners. A voting model is used to examine this idea, and its predictions are then tested using Indonesian data. About half of the district governments in Indonesia have been experimenting with Sharia-based religious policies since 2000. Their negative impact on government expenditure and services, which is the main prediction of the model, is identified using difference-in-differences and instrumental variables methodologies. The paper also gives a back of the envelope calculation on unobserved welfare effects of Sharia-based policies using ex-post election performance of incumbents.