Does political alignment across government tiers impact the provision of public services? A case from the water sector of Peru
Keywords:
decentralization, stochastic frontier, panel dataAbstract
This study analyzes the impact of political alignment on the performance of public utilities in a decentralized government structure. The literature shows that decentralization improves the provision of public services because local authorities are better informed about local needs. On the other hand, political interference in the decision making of service providers may undermine this effect. The Peru water sector is ideal for investigating the issue because the country has a decentralized structure and the water utilities’ boards of directors are selected by local political authorities. Political variables are constructed from the results of elections in 2002 and 2006 to capture political alignment between the two lower government tiers, municipalities and regions. Results show that the utilities’ cost increased in 2006 when there was political alignment between a large share of municipalities and regions when comparing to 2002. When investigating the alignment of lower government tiers to central government the result is puzzling and warrants further investigation. All in all, the results are informative to regulators and stakeholders investigating possible changes in utilities structure.
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