Fuelling the (party) machine: The political origins of the Greek debt during Metapolitefsi

The present paper investigates the possibility of political economy incentives behind the allocation of the markedly expanded fiscal account of intergovernmental transfers to prefectures and municipalities during Metapolitefsi – i.e., the period after the establishment of the Third Hellenic Republic (1974 to 1993). Building on a novel dataset of expenses to prefectures and subsidies to municipalities, we employ a Difference-in-Differences framework and a Regression Discontinuity Design respectively. Our analysis suggests that incumbent parties diverted prefectural expenses towards their political strongholds, and subsidies to politically aligned mayors. We argue that the expansion of intergovernmental transfers which contributed significantly to the derailment of the Greek state resulted from the transformation of the political system from traditional patron-client relationships to bureaucratic clientelism. On this basis, appointed prefects and politically aligned mayors became major components of a centralized party machine to mobilize voters through mass memberships “at the level of the town and the village” in the new era of Metapolitefsi.