Hessami, Zohal (2010): Corruption and the Composition of Public Expenditures: Evidence from OECD Countries.
Download (309Kb) | Preview
This paper analyzes how corruption affects the composition of public expenditures. First, a two-stage rent-seeking model with endogenous rent-setting is derived that captures both "political corruption" and "bureaucratic corruption". The model illustrates how asymmetries between industries in the degree of competition and in the difficulty of concealing bribery may influence the allocation of public spending. The theoretical implications are tested with a panel dataset for 26 OECD countries over the 1996 - 2008 period. The results suggest that the shares of spending on health and environmental protection increase, while the shares of spending on social protection and recreation, culture and religion decline with higher levels of corruption. The significance of these distortions is robust to a variety of specifications such as fixed effects, random effects, seemingly unrelated regressions, the inclusion of additional controls, and the use of alternative corruption indicators.
|Item Type:||MPRA Paper|
|Original Title:||Corruption and the Composition of Public Expenditures: Evidence from OECD Countries|
|Keywords:||Corruption; rent-seeking; public expenditures; budget composition|
|Subjects:||D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy; Administrative Processes in Public Organizations; Corruption
H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior
|Depositing User:||Zohal Hessami|
|Date Deposited:||23. Oct 2010 14:06|
|Last Modified:||11. Feb 2013 23:28|
Ades, A. and R. Di Tella (1999). Rents, Competition, and Corruption. American Economic Review 89 (4), 982-993.
Appelbaum, E. and E. Katz (1987). Seeking Rents by Setting Rents: The Political Economy of Rent Seeking. Economic Journal 97 (387), 685-699.
Bardhan, P. (1997). Corruption and Development: A Review of Issues. Journal of Economic Literature 35 (3), 1320-1346.
Beck, T., G. Clarke, A. Groff, P. Keefer, and P. Walsh (2001). New Tools in Comparative Political Economy: The Database of Political Institutions. World Bank Economic Review 15 (1), 165-176.
Boycko, M., A. Shleifer, and R. Vishny (1996). A Theory of Privatization. Economic Journal 106 (435), 309-319.
Br�äuninger, T. (2005). A Partisan Model of Government Expenditure. Public Choice 125 (3-4), 409-429.
Delavallade, C. (2006). Corruption and Distribution of Public Spending in Developing Countries. Journal of Economics and Finance 30 (2), 222-239.
Devereux, M. P., B. Lockwood, and M. Redoano (2008). Do Countries Compete Over Corporate Tax Rates? Journal of Public Economics 92 (5-6), 1210-1235.
European Commission (2007). Manual on Sources and Methods for the Compilation of COFOG Statistics: Classification of the Functions of Government (COFOG). Luxembourg: Office for Official Publications of the European Communities.
Fredriksson, P. G. and J. Svensson (2003). Political Instability, Corruption and Policy Formation: The Case of Environmental Policy. Journal of Public Economics 87 (7-8), 1383-1405.
Gupta, S., L. R. de Mello, and R. Sharan (2001). Corruption and Military Spending. European Journal of Political Economy 17 (4), 749-777.
Hillman, A. L. (2004). Corruption and Public Finance: An IMF Perspective. European Journal of Political Economy 20 (4), 1067-1077.
Hillman, A. L. (2009). Public Finance and Public Policy: Responsibilities and Limitations of Government (2nd ed.). Cambridge, MA: Cambridge University Press.
Hillman, A. L. and E. Katz (1987). Hierarchical Structure and the Social Costs of Bribes and Transfers. Journal of Public Economics 34 (2), 129-142.
Hines, J. R. (1995). Forbidden Payment: Foreign Bribery and American Business After 1977. NBER Working Paper No. 5266.
Huntington, S. P. (1968). Political Order in Changing Societies. New Haven, CT: Yale University Press.
Jong-A-Pin, R. (2009). On the Measurement of Political Instability and Its Impact on Economic Growth. European Journal of Political Economy 25 (1), 15-29.
Katz, E. and J. Tokatlidu (1996). Group Competition for Rents. European Journal of Political Economy 12 (4), 599-607.
Kaufmann, D., A. Kraay, and M. Mastruzzi (2004). Governance Matters III: Governance Indicators for 1996, 1998, 2000, and 2002. World Bank Economic Review 18 (2), 253-287.
Krueger, A. (1974). The Political Economy of the Rent-Seeking Society. American Economic Review 64 (3), 291-303.
Krugman, P. and M. Obstfeld (2006). International Economics: Theory and Policy (7th ed.). Boston, MA: Pearson Addison Wesley.
Lambsdorff, J. G. (2002). Corruption and Rent-Seeking. Public Choice 113 (1-2), 97-125.
Lambsdorff, J. G. (2004a). Background Paper to the 2005 Corruption Perceptions Index. University of Passau, 1-14.
Lambsdorff, J. G. (2004b). Corruption Perceptions Index 2003. In R. Hodess, T. Inowlocki, D. Rodriguez, and T. Wolfe (Eds.), Global Corruption Report 2004: Transparency International, pp. 282-287. London, UK: Pluto Press.
Leff, N. H. (1964). Economic Development through Bureaucratic Corruption. American Behavioral Scientist 82 (2), 337-341.
Mauro, P. (1995). Corruption and Growth. Quarterly Journal of Economics 110 (3), 681-712.
Mauro, P. (1998). Corruption and the Composition of Government Expenditure. Journal of Public Economics 69 (2), 263-279.
Mo, P. H. (2001). Corruption and Economic Growth. Journal of Comparative Economics 29 (1), 66-79.
Méon, P. G. and K. Sekkat (2005). Does Corruption Grease or Sand the Wheels of Growth? Public Choice 122 (1-2), 69-97.
Nitzan, S. (1991). Collective Rent Dissipation. Economic Journal 101 (409), 1522-1534.
Nordhaus, W. (1975). The Political Business Cycle. Review of Economic Studies 42 (2), 169-190.
Olson, M. (1965). The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge, MA: Harvard University Press.
Pellegrini, L. and R. Gerlagh (2004). Corruption's Eect on Growth and its Transmission Channels. Kyklos 57 (3), 429-456.
Pellegrini, L. and R. Gerlagh (2006). Corruption, Democracy, and Environmental Policy: An Empirical Contribution to the Debate. Journal of Environment and Development 15 (3), 332-354.
Ricciuti, R. (2004). Political Fragmentation and Fiscal Outcomes. Public Choice 118 (3-4), 365-388.
Robone, S. and A. Zanardi (2006). Market Structure and Technology: Evidence from the Italian National Health Service. International Journal of Health Care Finance and Economics 6 (3), 215-236.
Rose-Ackerman, S. (1975). The Economics of Corruption. Journal of Public Economics 4 (2), 187-203.
Schulze, G. G. and B. Frank (2003). Deterrence versus Intrinsic Motivation: Experimental Evidence on the Determinants of Corruptibility. Economics of Governance 4 (2), 143-160.
Shleifer, A. and R. W. Vishny (1993). Corruption. Quarterly Journal of Economics 108 (3), 599-617.
Smoltczyk, A. (2008). In Naples, Waste is Pure Gold. Retrieved on 18 January 2010 from http://www.spiegel.de/international/europe/0,1518,528501,00.html.
Stein, W. E. (2002). Asymmetric Rent-Seeking with More than Two Contestants. Public Choice 113 (3-4), 325-336.
Swaleheen, M. (forthcoming). Economic Growth with Endogenous Corruption: An Empirical Study. Public Choice.
Tanzi, V. and H. Davoodi (2000). Corruption, Public Investment and Growth. In V. Tanzi (Ed.), Policies, Institutions and the Dark Side of Economics, pp. 154-170. Cheltenham, UK and Northampton, MA: Edward Elgar.
Transparency International (2005). Global Corruption Report 2005. Retrieved on 21 January 2010 from http://www.transparency.org/publications/gcr/gcr_2005.
Tullock, G. (1980). Efficient Rent-Seeking. In J. M. Buchanan, R. D. Tollison, and G. Tullock (Eds.), Towards a Theory of the Rent-Seeking Society, pp. 97-112. College Station, TX: Texas A&M University Press.
Van Dalen, H. P. and O. H. Swank (1996). Government Spending Cycles: Ideological or Opportunistic? Public Choice 89 (1-2), 183-200.
Van Rijckeghem, C. and B. Weder (2001). Bureaucratic Corruption and the Rate of Temptation: Do Wages in the Civil Service Affect Corruption, and by How Much? Journal of Development Economics 65 (2), 307-331.
Volkerink, B. and J. de Haan (2001). Fragmented Government Eects on Fiscal Policy: New Evidence. Public Choice 109 (3-4), 221-242.
Woods, N. D. (2008). The Policy Consequences of Political Corruption: Evidence from State Environmental Programs. Social Science Quarterly 89 (1), 258-271.
World Bank (2008). World Development Indicators. Washington DC: The World Bank.
Zellner, A. (1962). An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests of Aggregation Bias. Journal of the American Statistical Association 57 (298), 348-368.