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Centralization and Accountability: Theory and Evidence from the Clean Air Act

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  • Boffa, Federico
  • Piolatto, Amedeo
  • Ponzetto, Giacomo AM

Abstract

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, voter information increases government accountability but displays decreasing returns. Therefore, political centralization reduces aggregate rent extraction when voter information varies across regions. It increases welfare as long as the central government is required to provide public goods uniformly across regions. The need for uniformity implies an endogenous trade off between reducing rents through centralization and matching idiosyncratic preferences through decentralization. We find that a federal structure with overlapping levels of government can be optimal only if regional differences in accountability are sufficiently large. The model predicts that less informed regions should reap greater benefits when the central government sets a uniform policy. Consistent with our theory, we present empirical evidence that less informed states enjoyed faster declines in pollution after the 1970 Clean Air Act centralized environmental policy at the federal level.

Suggested Citation

  • Boffa, Federico & Piolatto, Amedeo & Ponzetto, Giacomo AM, 2013. "Centralization and Accountability: Theory and Evidence from the Clean Air Act," CEPR Discussion Papers 9514, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9514
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    Citations

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    Cited by:

    1. Martín Gonzalez-Eiras & Dirk Niepelt, 2016. "Fiscal Federalism, Taxation and Grants," Working Papers 16.05, Swiss National Bank, Study Center Gerzensee.
    2. Glaeser, Edward L. & Ponzetto, Giacomo A.M., 2014. "Shrouded costs of government: The political economy of state and local public pensions," Journal of Public Economics, Elsevier, vol. 116(C), pages 89-105.
    3. Ugo Troiano & Giacomo Ponzetto, 2012. "Social Capital, Government Expenditures, and Growth," 2012 Meeting Papers 1048, Society for Economic Dynamics.
    4. Giacomo A. M. Ponzetto & Edward L. Glaeser, 2017. "The political economy of transportation investment," Economics Working Papers 1556, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2017.
    5. Gino Gancia, 2014. "Globalization and Political Structure," 2014 Meeting Papers 644, Society for Economic Dynamics.
    6. Che, Jiahua & Chung, Kim-Sau & Lu, Yang K., 2017. "Decentralization and political career concerns," Journal of Public Economics, Elsevier, vol. 145(C), pages 201-210.
    7. Edward L. Glaeser, 2012. "Urban Public Finance," NBER Working Papers 18244, National Bureau of Economic Research, Inc.
    8. repec:eee:transa:v:105:y:2017:i:c:p:106-122 is not listed on IDEAS
    9. repec:eee:rensus:v:80:y:2017:i:c:p:1372-1388 is not listed on IDEAS

    More about this item

    Keywords

    Air pollution; Elections; Environmental policy; Government accountability; Imperfect information; Interregional heterogeneity; Political centralization;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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