Shared Mandates, Moral Hazard and Political (Mis)alignment in a Decentralized Economy

This paper investigates the effects of political (mis)alignment on public service deliverywhen mandates are shared between state and local governments. We analyze sewage treatmentpolicies in the State of São Paulo, Brazil. Based on a regression discontinuity design, we establisha causal relationship between political alignment and higher sewage treatment provision.Conceptually, we find that, with uncertain local commitment and weakly enforceable localobligations, shared mandates lead to a moral hazard issue implying service under-provision.When political alignment is an option, our results show that it attenuates such moral hazardeffects.