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Centralization and accountability: Theory and evidence from the Clear Air Act

Listed author(s):
  • Federico Boffa

    ()

    (Institut d'Economia de Barcelona)

  • Giacomo A.M. Ponzetto

    ()

    (Centre de Recerca en Economia Internacional - CREi)

  • Amedeo Piolatto

    (Universidad de Alicante)

This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent-seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization reduces aggregate rent extraction. When the central government provides public goods uniformly across space, the model predicts that a region’s benefits from centralization are decreasing in its residents’ information. We test this prediction using panel data on pollutant emissions and newspaper circulation across the United States. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we find that centralization induced a faster decrease in pollution in less informed states.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2013-03.pdf
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2013-03.

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Length: 75 pages
Date of creation: Apr 2013
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2013-03
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