Supplying Compensation: Political Distortion in Adjustment Funding for Coal Communities

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Despite the prominence of compensation as a strategy to stem opposition from groups harmed by policy reforms or economic disruption, governments often fail to provide adequate adjustment assistance. We argue that leaders have political incentives to distort compensation funding when voters oppose the reform and the benefits of assistance are delayed. We evaluate our argument in the context of the Appalachian Regional Commission's program to help coal mining communities adjust to the clean energy transition. We collect novel grant-level data from 2007-2019 to study how much and what type of funds coal communities receive. Using a triple-differences design, we detect political distortions, where coal counties in Republican states are less likely to receive assistance. State-level public opinion data show this distortion is in line with the median voter's climate policy preferences, and there is no indication that assistance improved economic outcomes. Whether compensation is an effective political strategy depends on the incentives of leaders to offer it in the first place.

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Working Papers