may affect electoral outcomes seems reasonable. Since there may well be serial correlation and an effect of expenditures on elections, studies which disregard the possibility of simultaneity must be treated with caution (see, for example, Bruhn, Graham and Kane).

The standard solution to this simultaneity problem is instrumental variables. But the search for appropriate instruments is not simple: variables which affect elections tend to affect expenditures as well. The Peruvian case offers a partial solution to this problem, however, because we may legitimately be able to treat the 1990 election as exogenous to the model. FONCODES did not fund any projects until more than a year after the 1990 election. The election cannot therefore have been affected by FONCODES expenditures, equation (7) does not apply, and simultaneity should not be a source of bias in the parameters estimated in (4) for the December 1991-October 1993 period. The break in FONCODES expenditures before December 1991 may therefore work as a "natural experiment" which allows us to accurately identify the effect of an election on expenditures (Deaton, pp. 112-115). More generally, this result highlights the value of research which focuses on _new_ social programs to estimate the impact of elections on public expenditure patterns.<sup>17</sup> Estimates of the effect of elections on expenditures after October 1993 are more open to question because the 1993 referendum may itself have been determined in part by FONCODES expenditures in the preceding period.

Lack of comprehensive data and censoring are both potential sources of bias. Information on the results of the run-off 1990 presidential election is not available for 19 provinces. Also, seven new provinces were created between 1990 and 1995. As a result, there is data on FONCODES expenditures for 231 provinces, but data on elections for only 205 provinces.

There is nothing distinctive about the provinces for which electoral data is missing--they are not, for example, particularly poor or rich, or concentrated in one part of the country. As a safeguard, however, I run additional regressions in which the missing values are replaced with the relevant departmental averages. 8 The results (not reported) are very similar to those which do not include these provinces, suggesting that this is not a source of bias.

17 Unless, of course, the new program was promised before an election, the promnise was regarded as credible, and it influenced the outcome of the election (Avinash Dixit, personal communication with the author, April 1998). Fujimori committed himself to not implementing the kind of "shock" adjustment program advocated by his opponent Mario Vargas Llosa, a commitment he quickly broke after the election. His platform also made references to continued subsidies for basic consumer goods, and to the promotion of small domestic industries (1 thank an anonymous referee for this information). The results for the 1991-1993 period will only be contaminated by endogeneity bias, however, if Fujimori's campaign promises were credible and specific enough to enable voters in different provinces to predict differences in the transfers they could expect to receive from a program "like" FONCODES (since FONCODES itself was never mentioned in the campaign).

18 For example, there are no electoral results for the seven provinces in the department of Apurimac, but we know that 81.54% of the population of the department voted for Fujimori. These regressions would therefore assume that the pro-Fujimori vote in each of the seven provinces was 81.54%.

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