Decentralization and provision of public services: evidence from Brazilian municipalities secession on sanitation services

Abstract

This work investigates whether the political decentralization represented by the creation of new municipalities in Brazil impacts on investments in sanitation services. In particular, we test the hypotheses that the greater proximity between public officials and citizens as a result of decentralization, leads to a better matching of the sanitation service offered to local people. Using the method of difference in differences, we find evidence that the creation of municipalities lead to an expansion of investments (R$220 reais per capita larger compared to those in the same microrregião)) and that they respond to coverage levels comparatively lower than in neighboring municipalities. However, this effect is not found for the response in the quality of sanitation services. Last, we estimate that new municipalities do respond more 12% more in relative (neighbor’s) investments in that sector compared to the origin’s municipalities,