Working Paper Cnr-Ceris, N° 13/2012

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

Federico Boffa
Università di Macerata and IEB

Amedeo Piolatto
IEB, Universitat de Barcelona

Giacomo A. M. Ponzetto
CREI, Universitat Pompeu Fabra, and Barcelona GSE

First draft, 15 October 2011 –This draft, 12 April 2012

ABSTRACT: 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 efficiently reduces aggregate rent extraction. 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 across U.S. states. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we find that centralization induced a differential decrease in pollution for uninformed relative to informed states.

Keywords: Political centralization, Government accountability, Imperfect information, Interregional heterogeneity, Elections, Environmental policy, Air pollution

JEL codes: D72, D82, H73, H77, Q58

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