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

Evan Plous Kresch


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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