Fiscal consequences of public corruption: Empirical evidence from state bond ratings

Empirical analyses of public corruption focus predominantly on international differences; regional differences in public corruption within a single country receive little attention. We empirically investigate the effect of public corruption in the United States on state bond ratings, which previous research shows are inversely related to net interest costs on public debt. After controlling for various economic influences on bond ratings, we find that more corrupt states have lower bond ratings, which implies that taxpayers in more corrupt states face a negative pecuniary externality by paying a premium for debt.     

Corruption and support for decentralisation

Existing explanations of individual preferences for decentralisation and secession focus on collective identity, economic considerations and party politics. This paper contributes to this literature by showing that preferences for fiscal and political decentralisation are also driven by concern about the quality of government in the face of corruption. It makes two claims. Firstly, information on national-level corruption decreases satisfaction with national politicians, and subsequently increases preferences for decentralisation and secession. Secondly, information on regional-level corruption pushes citizens of highly corrupt regions to prefer national retrenchment and unitary states. The effects of this political compensation mechanism crosscut national identities and involve regions that are not ethnically or economically different from the core. We test our argument using a survey experiment in Spain and confirm its cross-national generalisability with data from the European Values Study.     

Perils of development funding? The tale of EU Funds and grand corruption in Central and Eastern Europe

Given the unprecedented scale of intergovernmental development funding and the importance of institutional quality for human well‐being, it is imperative to precisely understand the impact of development funds on corruption. In Europe, European Union (EU) Funds provide a boost to public spending in recipient member states while introducing additional corruption controls. We investigate whether EU Funds increase high‐level corruption in the Czech Republic and Hungary in 2009–2012. We analyze newly collected data from over 100,000 public procurement contracts to develop objective corruption risk indicators and link them to agency level data in the public sector. Propensity score matching estimations suggest that EU funds increase corruption risk by up to 34 percent. The negative effects are largely attributable to overly formalistic compliance and EU Funds overriding domestic accountability mechanisms in public organizations entirely dependent on external funds. The policy implications are profound: governments should reduce barriers to market entry by lowering red tape and prevent excessive concentration of funds.     

The relationship between corruption and income inequality in U.S. states: evidence from a panel cointegration and error correction model

We investigate the causality between corruption and income inequality within a multivariate framework using a panel data set of all 50 U.S. states over the period 1980 to 2004. The heterogeneous panel cointegration test by Pedroni (Oxf. Bull. Econ. Stat. 61:653–670, 1999; Econom. Theory 20:597–627, 2004) indicates that in the long run corruption and the unemployment rate have a positive and statistically significant impact on income inequality while a negative impact is found for real personal income per capita, education, and unionization rate. The Granger-causality results associated with a panel vector error correction model indicate both short-run and long-run bidirectional causality between corruption and income inequality.     

Decentralisation and corruption: evidence from drinking water sector

This article presents empirical findings regarding the relationship between decentralisation of provision of water supply and corruption in provision of services. The current policy advice from the international agencies of aiming for decentralisation as an end in itself is questioned. The conventional wisdom that decentralisation brings management closer to the service recipients and is therefore likely to reduce corruption is also disputed. Drawing on a large database from two large Indian states of Madhya Pradesh and Chhattisgarh, the interaction between various actors is analysed. We find that the level of corruption in water supply agencies run by local governments is higher than that in the agencies run by the regional government. Copyright © 2008 John Wiley & Sons, Ltd.     

Serving Two Masters: Professionalization versus Corruption in Ukraine's Election Administration

The development of a neutral, professional bureaucracy has been a profound concern for emerging democracies. International and domestic actors have expended significant resources to encourage the development of the rule of law, yet many postcommunist societies remain mired in corruption. When corrupt behaviors are integrated with a core function of democratic states, such as the implementation of free and fair elections, the implications of failures to professionalize bureaucrats are enhanced. This article empirically evaluates how professionalization and corruption interact in election administration, using unique survey data from Ukraine. We assess the results of pre‐ and postelection surveys of administrators conducted across Ukraine during the 2014 parliamentary elections. Our results suggest that aspects of a professionalized bureaucracy coexist with corruption and that mitigating incentives for state capture is a major challenge for democratization.     

The impact of public sector accounting reform on corruption: Causal evidence from subnational Indonesia

It is widely believed that the adoption of quality public sector accounting practices can assist in reducing corruption. In theory, accounting reform, especially the shift from cash-to accrual-based methods, leads to the production of much improved financial information, which ultimately can be used by citizens to hold government more accountable and limit corruption. Empirical evidence from cross-country analyses appears to support the theoretical predictions. We investigate the impact of accounting practices on corruption among districts in Indonesia. We use external financial audits to measure the adoption of reforms and the number of corruption case court convictions as our proxy for corruption. We estimate Poisson regression models using instrumental variable techniques to identify the causal effects of adopting accrual-based accounting procedures on corruption. We show that the employment of improved accounting methods is strongly associated with declining corruption. However, after accommodating the endogeneity of accounting practices, we determine that reform adoption has no effect on corruption.     

Measuring Local Corruption in China: a Cautionary Tale

The intensification of corruption in China has led to a recent surge of scholarship examining the causes and consequences of corruption within the country. Nevertheless, no consensus exists as to how corruption should be measured at the local level. In this article, I evaluate the internal and external validity of three major groups of measures for local-level corruption in China, namely: perception-based measures, demand-side measures, and supply-side measures. In applying these measures to a model that examines the effect of corruption on local economic growth in China, I show that the results are highly dependent on the choice of the corruption measure. In conclusion, I suggest that future research using local-level corruption as a key variable should at least explore alternative measures to check for the robustness of the findings.     

Do Corruption and Social Trust Affect Economic Growth? A Review

Abstract

Two separate literatures suggest that corruption and social trust, respectively, are related to economic growth, although the strengths of the relationships, and the direction of causality, are still debated. This paper reviews these literatures and evaluates the evidence for causal effects of corruption and trust on economic growth, and discusses how corruption and trust are interrelated. The reviews show that absence of corruption and high levels of social trust foster economic growth. The literatures also indicate that corruption has a causal effect on social trust, while the opposite effect is more uncertain. The conclusion offers the suggestion that fighting corruption may yield a “double dividend”, as reduced corruption is likely to have both direct and indirect effects on growth.     

Economic growth with endogenous corruption: an?empirical study

The effect of corruption on the rate of economic growth for a panel of countries during 1984?C2007 is investigated using recent improvements in dynamic panel data techniques to control for the endogeneity of corruption and investment. Corruption has a significant effect on the growth rate of real per capita income. This effect is non-linear.     

The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending

This article demonstrates the impact of public officials’ corruption on the size and allocation of U.S. state spending. Extending two theories of “excessive” government expansion, the authors argue that public officials’ corruption should cause state spending to be artificially elevated. Corruption increased state spending over the period 1997–2008. During that time, the 10 most corrupt states could have reduced their total annual expenditure by an average of $1,308 per capita—5.2 percent of the mean per capita state expenditure—if corruption had been at the average level of the states. Moreover, at the expense of social sectors, corruption is likely to distort states’ public resource allocations in favor of higher‐potential “bribe‐generating” spending and items directly beneficial to public officials, such as capital, construction, highways, borrowing, and total salaries and wages. The authors use an objective, concrete, and consistent measurement of corruption, the number of convictions.     

IS ALL CORRUPTION DYSFUNCTIONAL? PERCEPTIONS OF CORRUPTION AND ITS CONSEQUENCES IN PAPUA NEW GUINEA

Many anti‐corruption organisations work from the notion that both petty and grand corruption axiomatically results in negative consequences. However, few studies have asked citizens to evaluate the effects of different scales and types of corruption. This article investigates how rural people in Papua New Guinea associate dysfunctional or functional consequences to different types and scales of corruption. It draws on findings from focus groups conducted in four provinces of the country. The article finds that most examples of corruption considered by respondents were perceived as dysfunctional; however, marginalised respondents considered small‐scale corruption as functional—if the acts described benefitted marginalised people. These findings suggest that it is critical that anti‐corruption organisations understand and respond to the constraints faced by poor and marginalised people when operating in weak states. Copyright © 2012 John Wiley & Sons, Ltd.     

An Insider–Outsider Theory of Popular Tolerance for Corrupt Politicians

This article addresses the puzzle of electoral support for corrupt politicians in emerging democracies by examining citizens’ varying attitudes toward political corruption. We make an important theoretical distinction between perceptions of and tolerance for corruption, and argue that these different attitudes vary across individuals depending on whether they are political insiders or outsiders. We test our theory using Afrobarometer survey data from 18 sub‐Saharan African countries and find that individuals included within clientelistic networks simultaneously perceive corruption as ubiquitous and are more tolerant of malfeasance. Meanwhile, those individuals with partisan or ethnic ties to the incumbent are less likely to consider corruption as widespread. Finally, we explore whether variation in attitudes toward corruption influences citizens’ voting behavior, and find that insiders are less likely to “vote the rascals out.”     

The nexus between corruption and capital account restrictions

We provide a formal model illustrating the mutual relationship between corruption and capital account restrictions. Corrupt countries are more likely to impose capital controls because corruption reduces a government’s ability to collect tax revenue. If controls exist, however, individuals try to mitigate the burden by offering bribes, thereby increasing corruption. We test the model using panel data for 80 countries over the period 1984–2002 and find that corruption and restrictions indeed affect each other. Government’s attempts to increase revenue via controls on capital might thus invoke a restrictions-rent-seeking spiral with destructively high levels of both. Using capital controls to increase revenue should be reconsidered.     

Dealing with sectoral corruption in Bangladesh: Developing citizen involvement

Bangladesh has had a troubled political history since gaining independence in 1971 and is also beleaguered by poverty and natural environmental disasters. In particular however, corruption is blighting its prospects for economic growth, undermining the rule of law and damaging the legitimacy of the political process. This article adopts a sectoral approach to the study of corruption by examining people's experiences of using health and education services in Bangladesh through a large scale quantitative survey. It also presents case study research which assesses the impact of anti‐corruption work by Transparency International Bangladesh (TIB) in the areas of health and education. The article concludes that: the poorest in Bangladesh are most penalised by corruption; there are significant benefits for health and education service users resulting from TIB's interventions and there is a need for committed political leadership if ongoing efforts to tackle corruption are to be effective and sustainable. Copyright © 2009 John Wiley & Sons, Ltd.     

Does corruption grease or sand the wheels of growth?

This paper assesses the relationship between the impact of corruption on growth and investment and the quality of governance in a sample of 63 to 71 countries between 1970 and 1998. Like previous studies, we find a negative effect of corruption on both growth and investment. Unlike previous studies, we find that corruption has a negative impact on growth independently from its impact on investment. These impacts are, however, different depending on the quality of governance. They tend to worsen when indicators of the quality of governance deteriorate. This supports the “sand the wheels” view on corruption and contradicts the “grease the wheels” view, which postulates that corruption may help compensate bad governance.     

Corruption: Governance challenge towards reducing unemployment in Nigeria

The study examines the possibility of having a very low rate of unemployment in Nigeria, if there is a reduced rate of corruption in the long-term. While using cointegration regressions and Vector Error Correction Mechanism (VECM) over the period 1996–2020, it is affirmed that corruption could increase unemployment rate in the long run. The two corruption indicators employed (control of corruption and corruption index) are found to have a substantial effect on unemployment rate. Further evidence confirms that corruption and unemployment are cyclically interdependent. Findings indeed stress that a high level of corruption is harmful to employment growth. On the other hand, in the absence of sufficient job opportunities, rent-seeking government officials would be more interested in collecting bribes from job seekers, which results in sustained unlawful practices among the public officials. Thus, adopting effective corruption-control measures is critical. It is therefore suggested that to effectively tackle corruption incidents, there should be incentives for citizens or public officials to report bribery and the process of reporting corruption incidents should be further simplified. Strengthening anti-corruption agencies and developing a sound legal framework that promotes a culture of lawfulness and impeccable practices in the public sector are central.     

Corruption in the Eye of the Beholder: Survey Evidence from Mainland China and Hong Kong

ABSTRACT

This article explores how and to what extent people differ in their level of tolerance for corruption and why some people show a stronger propensity to counter corruption actively, while others seem more willing to accept it. We draw on the original data collected from a survey on perceptions of corruption among university students in Hong Kong and Mainland China to answer these questions. The respondents’ perceptions of corruption are measured by how they identify corruption, understand its causes, and interpret the consequences it may bring to society. Our empirical findings show substantial differences in perceptions of corruption across and within the two regions and also reveal a strong association between the way people perceive corruption and their level of tolerance for corruption and propensity to act against it. We see that, other things being equal, different perceptions of corruption lead to different tolerance levels for corruption and influence people's willingness to take part in the fight against corruption. Our findings also suggest that it is important to address the deficit in people's understanding of corruption in order to achieve desired anti-corruption effects.     

The policy consequences of political corruption

Controversies abound over whether political corruption handicaps the disadvantaged, facilitates government action, or simply inflates government costs. Multivariate analysis using data from the American states supports none of the hypotheses. Rather, corruption appears to have virtually no policy impact, either directly or in interaction with party competition.     

Why do anti‐corruption laws fail in Central Eastern Europe? A target compliance perspective

The Central Eastern European member states of the European Union have introduced a host of anti‐corruption measures in the past two decades, yet corruption is still prevalent. Rather than asking what is wrong with the letter of the law, which has traditionally been the focus of analysis, this article identifies some of the reasons why those whose behavior the law seeks to change fail to act as expected. Drawing on theoretical insights from implementation studies and using Hungary as an illustrative example, the article finds that both incentives and normative judgments are skewed towards non‐compliance with anti‐bribery laws. The main policy implications are that anti‐corruption interventions should pay more attention to raising awareness among target groups, take existing social norms into account, and rely on positive incentives as well as, or rather than, increasing penalties.