The Buck Stops Where? Federalism, Uncertainty, and Investment in the Brazilian Water and Sanitation Sector

Abstract

This paper documents how regulatory uncertainty may undermine public service when different levels of government share a mandate on public service provision. I examine the Brazilian water and sanitation sector, which presents a natural experiment of shared provision between state and municipal companies. Using a difference-in-differences framework, I study a legal reform that clarified the relationship between municipal and state providers and eliminated any takeover threat by state companies. I find that after the reform, municipal companies almost doubled their total system investment, leading to significant increases in system access and decreases in child mortality.

Publisher

American Economic Association

Publication Date

8-1-2020

Publication Title

American Economic Journal: Economic Policy

Department

Economics

Document Type

Article

DOI

https://dx.doi.org/10.1257/pol.20180327

Language

English

Format

text

Link to Full Text

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