The Buck Stops Where? Federalism and Investment in Public...
Transcript of The Buck Stops Where? Federalism and Investment in Public...
The Buck Stops Where? Federalism and Investment inPublic Utilities: Evidence from the Brazilian Water and
Sanitation Sector
Evan P Kresch
Department of EconomicsOberlin College
ABCDE 2018
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Motivation
Figure: Government Public Goods Provider by Country
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Motivation and Question
• Government provision of public goods is a first-order concern foreconomic and general well-being
• Multiple levels of government commonly share responsibility forprovision of these goods
• This paper considers what types of inefficiencies overlappingresponsibilities for government service provision may introduce
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Identification
• Look at the Brazilian water and sanitation (WS) sector:
I Overlapping legal and organizational structure
I Self-run vs state-run WS service in municipalities
I Congressional reform in 2005 to clarify government’s role in the sector
• Can estimate effect of legal reform on investment decisions by WScompanies
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Preview of Results
• Post-legislation, self-run municipal WS companies:
I Almost doubled total investment from pre-reform levels
I Increased investment funded by Loans and Debt and Self Financing
I Increased investment in all aspects of network
• 2 years later, significant increase in water and sewer access
I Increased number of connections & network length
• Associated with access, significant decrease in child mortality
I ≈24% decrease in annual deaths from pre-reform levels
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Institutional Context
• 1960’s: Municipal provision of WS services
• 1971: National Sanitation Plan (PLANASA)
I Created 25 state-wide companies (CESBs)
I Approximately 70% of municipalities contracted with CESBs
I Self-run municipalities were (on average) richer, more developed, &more politically autonomous (Rezende; 2005), (Castro & Heller; 2004)
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Municipality by WS Provider Type
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Institutional Context
• Unclear legal arrangement between states and municipalities
I 1988 Brazilian Constitution, Article 30: municipality as the holder ofoperational authority over all public services “of the local interest”
I National Association of Municipal Sanitation (ASSEMAE)
I Lobby group for ≈2000 municipality-run WS companies
I 1990s: Attempted state takeover by Bahia & Rio de Janeiro
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Institutional Context
• Congressional bill in 2005 to reform WS sector:
I Control to municipalities → “residual rights of control”
I Eliminated takeover threat by state WS companies
I Passed Congress in January 2007 at National Water Law 11.447
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Intuition
• How does legal reform affect public utilities’ investment?
• Observations:
I More well-off municipalities created self-run companies
I Attractive for state-run company takeover
I If taken over, resources could be expropriated to other municipalities
• Main result: Reform that reduces takeover risk should increaseinvestment in public utilities
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Empirical Strategy
• Proposal and the subsequent passage of 2005 Bill:
I Clarified roles of different levels of gov’t in the WS sector
I Eliminated takeover threat by state-run companies
• Use in Diff-in-Diff framework:
I Compare investment levels across municipalities:
I Self-run (treatment) vs state-run (control)
I Investment level before and after legal reform
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Data
• Main data source: Ministry of cities
• Annual panel dataset of Brazilian WS sector
I Data disaggregated at the municipality level
I Period of study: 2001-2012
I Seven types of network investment categories
I 1 total, 3 sources, 3 destinations
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Estimating Equation
ymt = α+γm +λt + δReformmt +βXmt + θInitialInvestm ∗ timetrend + εmt
• For municipality m in year t, where:
I ymt are the 7 investment categories
I Reformmt = 1 after 2005 for municipality m with self-run company
I γm and λt are municipality and year fixed effects
I Xmt is a vector of control variables (population, public finances, etc.)
I εmt are robust SEs clustered at the WS company level
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Results - Total Investment
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Results - Investment by Source
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Results - Investment by Destination
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Results
Table: WS Investment
Source of Investments Destination of Investments
TotalInvestment
SelfFinancing
Loansand Debt
GovernmentGrants
Investmentin Water
Investmentin Sewer
OtherInvestments
Self-run company, Post-reform 2,856** 1,768*** 2,142** -92.87 494.3 1,874** 438.5***(1,319) (489.5) (920.4) (297.9) (598.9) (858.7) (147.4)
Observations 14,460 14,460 14,460 14,460 14,460 14,460 14,460R-squared 0.817 0.618 0.445 0.494 0.714 0.723 0.531Year FE Yes Yes Yes Yes Yes Yes YesMunicipality FE Yes Yes Yes Yes Yes Yes YesControls Yes Yes Yes Yes Yes Yes Yes
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Second Stage - System Access
• Did increased investment lead to better service/access?
• Look at access to system 2 years after reform:
I Number of system connections
I Length of system network pipes
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Results
Table: WS System Access
Water NetworkNumber of Water
Connections - TotalNumber of Water
Connections - ActiveNumber of Water
Connections - MeteredNumber of Householdswith Water Connection
WaterNetwork Length
Self-run company, 2,854** 2,243** 2,770*** 3,114** 34.30***2 years post-reform (1,176) (1,092) (910.1) (1,477) (10.50)
Observations 15,169 15,256 15,262 15,283 15,192R-squared 0.986 0.987 0.990 0.989 0.316
Sewer NetworkNumber of Sewer
Connections - TotalNumber of Sewer
Connections - ActiveNumber of Sewer
Connections - MeteredNumber of Householdswith Sewer Connection
SewerNetwork Length
Self-run company, 4,191*** 3,748*** 5,206*** 4,552*** 60.08***2 years post-reform (1,132) (1,064) (1,527) (1,413) (19.90)
Observations 15,169 15,256 15,262 15,283 15,192R-squared 0.986 0.987 0.990 0.989 0.316
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Second Stage - Health Outcomes
• Did increased investment (and access) lead to improved welfare?
• Look at mortality across age cohorts
I Children (< 5 years) likely more affected by access to improved WS
I Less developed immune systems
I Less knowledge of avoidance behvaiors
I Older age cohorts should be less affected
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Results
Table: Mortality by Age Cohort
Less Than 5 Years 5 - 9 Years 10 - 19 Years 20 - 29 Years 30 - 39 Years 40 - 49 Years
Self-run company, -4.196*** -0.189 -1.511 -1.111 -2.284 -1.9762 years post-reform (1.615) (0.142) (1.124) (2.182) (1.523) (1.416)
Observations 16,149 16,149 16,149 16,149 16,149 16,149R-squared 0.961 0.934 0.930 0.949 0.979 0.992Year FE Yes Yes Yes Yes Yes YesState FE Yes Yes Yes Yes Yes YesMetro FE Yes Yes Yes Yes Yes YesControls Yes Yes Yes Yes Yes Yes
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Summary
• Post-legislation, self-run municipal WS companies:
I Almost doubled total investment from pre-reform levels
I Increased investment funded by debt and self-financing
I Significant increases in investment in all aspects of network
• 2 years later, significant increase in water and sewer access
I Increased number of connections & network length
• Associated with access, significant decrease in child mortality
I ≈24% decrease in annual deaths from pre-reform levels
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Policy Implications
• Document new way in which weak institutional environmentundermines provision of public services
• Stress the importance of strong legal framework in governmentprovision
I Alternative method for achieving increases in public investment:strengthening property rights
I Strong institutional framework could maintain investments fromconventional outside sources
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Questions & Comments
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