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Decentralization and corruption - evidence across countries

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  • Fisman, Raymond
  • Gatti, Roberta

Abstract

The relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design. The theoretical literature makes ambiguous predictions about this relationship, and it has remained virtually unexamined by empiricists. The authors make a first attempt at examining the issue empirically, by looking at the cross-country relationship between fiscal decentralization and corruption as measured by a number of different indices. Their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption. Moreover, they find that the origin of a country's legal system - for example, civil versus common legal code - performs extremely well as an instrument for decentralization. The estimated relationship between decentralization, when so instrumented, and corruption is even stronger. The evidence suggests a number of interesting areas for future work, including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction, and understanding the channels through which decentralization succeeds in keeping corruption in check.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2290.

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Date of creation: 29 Feb 2000
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Handle: RePEc:wbk:wbrwps:2290

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Keywords: National Governance; Decentralization; Pharmaceuticals&Pharmacoeconomics; Economic Theory&Research; Legal Products; National Governance; Governance Indicators; Pharmaceuticals&Pharmacoeconomics; Economic Theory&Research; Legal Products;

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  1. Alberto Alesina & Romain Wacziarg, 1997. "Openness, Country Size and the Government," NBER Working Papers 6024, National Bureau of Economic Research, Inc.
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  16. Huther, Jeff & Shah, Anwar, 1998. "Applying a simple measure of good governance to the debate on fiscal decentralization," Policy Research Working Paper Series 1894, The World Bank.
  17. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  18. Timothy Besley & Stephen Coate, 1999. "Centralized versus Decentralized Provision of Local Public Goods: A Political Economy Analysis," NBER Working Papers 7084, National Bureau of Economic Research, Inc.
  19. . Pranab Bardhan and Dilip Mookherjee. Revised, 2000. "Decentralizing Anti-Poverty Program Delivery in Developing Countries" and C98-104.2 "Corruption and Decentralization of Infrastructure Delivery in Developing Countries," Center for International and Development Economics Research (CIDER) Working Papers C98-104.1, University of California at Berkeley.
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