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International audience ; The paper illustrates how the Government role has recently evolved, specifically focusing on the 2008 financial crisis. First, we analyze the Government responsibilities in triggering the crisis, by bloating the supply of credit. We discuss emerging countries' expansionary monetary policy, in many cases aimed at defending their export, thereby directing huge savings flows towards developed countries. We then expound the role of the US housing and monetary policies, as well as other countries' policies, particularly regarding financial deregulation. Second, we deal with some critical aspects of Governments' intervention in the aftermath of the crisis. We show the negative impact of a number of policies, particularly in the accounting field, which contributed to exacerbating the tendency to an inefficient allocation of the available capital, where an excessive weight has been placed on low-risk assets, resulting in a slowdown of economic growth. Finally, we use a simple game theoretic model to emphasize the need for an regulation policy.

Central politicians channel resources to sub-national entities for political gains. We show formally that the central politicians' allocation decision has two drivers: political alignment (between central and local politicians) and the level of local political accountability. However, drivers count one at a time: alignment matters before local elections, while local political accountability matters before central elections. We then perform a test of our model using Brazilian data, which corroborates our results. Furthermore, we show and explain why political accountability becomes a curse: better educated districts receive fewer transfers in equilibrium

Central-government politicians channel resources to sub-national entities for political gains. We show formally that the central politicians' allocation decision has two drivers: political alignment (between central and local politicians) and the level of local political accountability. However, drivers count one at a time: alignment matters before local elections, while local political accountability matters before central elections. We then perform a test of our model using Brazilian data, which corroborates our results. Furthermore, we show and explain why political accountability becomes a curse: better-educated districts receive fewer transfers in equilibrium.

This article explains why decentralization can undermine accountability and answers three questions: what determines if power should be centralized or decentralized when regions are heterogeneous? How many levels of government should there be? How should state borders be drawn? We develop a model of political agency in which voters differ in their ability to monitor rent-seeking politicians. We find that rent extraction is a decreasing and convex function of the share of informed voters, because voter information improves monitoring but also reduces the appeal of holding office. As a result, information heterogeneity pushes toward centralization to reduce rent extraction. Taste heterogeneity pulls instead toward decentralization to match local preferences. Our model thus implies that optimal borders should cluster by tastes but ensure diversity of information. We also find economies of scope in accountability that explain why multiplying government tiers harms efficiency. A single government in charge of many policies has better incentives than many special-purpose governments splitting its budget and responsibilities. Hence, a federal system is desirable only if information varies enough across regions.

This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rentseeking 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.

This article explains why decentralization can undermine accountability and answers three questions: what determines if power should be centralized or decentralized when regions are heterogeneous? How many levels of government should there be? How should state borders be drawn? We develop a model of political agency in which voters differ in their ability to monitor rent-seeking politicians. We find that rent extraction is a decreasing and convex function of the share of informed voters, because voter information improves monitoring but also reduces the appeal of holding office. As a result, information heterogeneity pushes toward centralization to reduce rent extraction. Taste heterogeneity pulls instead toward decentralization to match local preferences. Our model thus implies that optimal borders should cluster by tastes but ensure diversity of information. We also find economies of scope in accountability that explain why multiplying government tiers harms efficiency. A single government in charge of many policies has better incentives than many special-purpose governments splitting its budget and responsibilities. Hence, a federal system is desirable only if information varies enough across regions. ; Boffa acknowledges financial support from the Free University of Bolzano (WW82); Piolatto from the Spanish Ministry of Science and Innovation (ECO-2012-37131) and the Government of Catalonia (2014-SGR-420); Ponzetto from the Spanish Ministry of Science and Innovation (JCI-2010-08414 and ECO-2011-25624), the Spanish Ministry of Economy and Competitiveness (RYC-2013-13838), the Government of Catalonia (2009-SGR-1157 and 2014-SGR-830), the Barcelona GSE and the BBVA Foundation through its first grant for Researchers, Innovators and Cultural Creators.