CDEP-CGEG WORKING PAPER NO. 41

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

Evan Plous Kresch

Abstract:

This paper documents how weak institutions may undermine public goods service when multiple levels of government share responsibility of provision. I examine the Brazilian water and sanitation sector, which presents a natural experiment of shared provision between state and municipal companies. Using a differences-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 after the reform, municipal companies almost doubled their total system investment.  The increased investment in these municipalities led to significant increases in system access and decreases in child mortality.

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