Builders, Politicians, and Election Finance

In many developing countries, politicians often turn to private firms for illicit election finance. In sectors where firms are highly regulated, politicians can exchange policy discretion or regulatory favours for financial support during elections. This chapter explores this dynamic by focusing on the role of the construction sector in India, a domain where regulatory intensity is high. Specifically, we argue that builders will experience a short-term liquidity crunch as elections approach because of their need to re-route funds to campaigns as a form of indirect election finance. We use variation in the demand for cement, the indispensable ingredient for construction, to investigate the presence of an electoral cycle in building activity consistent with this logic. Using a novel monthly-level dataset, we demonstrate that cement consumption does exhibit a political business cycle supportive of our hypothesis.