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Political Centralization and Government Accountability

  • Federico Boffa
  • Amedeo Piolatto
  • Giacomo Ponzetto

This paper studies fiscal federalism when regions differ in voters' ability to monitor public officials. We develop a model of political agency in which rent-seeking politicians provide public goods to win support from heterogeneously informed voters. In equilibrium, we find that voter information increases government accountability but displays decreasing returns. Therefore, political centralization reduces aggregate rent extraction when voter information varies across regions. When the central government sets a uniform national policy, each region benefits in inverse proportion to its residents' ’information. We test this prediction using panel data on pollution and newspaper circulation across the United States. The 1970 Clean Air Act centralized environmental policy at the federal level. Consistent with our theory, we find that less informed states benefited from a faster decrease in pollution after centralization.

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File URL: http://research.barcelonagse.eu/tmp/working_papers/656.pdf
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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 656.

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Date of creation: May 2014
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Handle: RePEc:bge:wpaper:656
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