Within-country migration, particularly from rural to urban areas, is increasing throughout the developing world. Although migration promotes growth and reduces poverty, it can also lead to localized resource shortages, strains on urban infrastructure, and labor market displacement. Development experts and theorists of political economy, especially in the fiscal federalism literature, argue that central governments should adjust spending to counter negative spillovers in migrant-receiving areas. We examine the extent to which this redirection of fiscal resources occurs in the world’s largest democracy, India. We use weather-related shocks to migration to identify the causal effect of population flows on central government transfers to states. We find that increases in migration are met with greater central transfers—total transfers, development grants, and funds for executive ministry schemes—but that these flows are at least 50% greater if the state-level executive is in the prime minister’s political party. Thus, partisan politics dictates the extent to which the central government addresses the negative externalities of population inflows in migrant-receiving areas. This political bottleneck may explain why Indian states maintain formal and informal barriers to internal migration despite high costs to economic efficiency and human development.
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