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The Effect of Fiscal Decentralization on Corruption: A Non-linear Hypothesis

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  • Alfano Maria Rosaria

    (Dipartimento di Economia, Università della Campania L. Vanvitelli,Caserta CE, Italy)

  • Baraldi Anna Laura

    (Dipartimento di Economia, Università della Campania L. Vanvitelli,Caserta CE, Italy)

  • Cantabene Claudia

    (Dipartimento di Economia, Università della Campania L. Vanvitelli,Caserta CE, Italy)

Abstract

This study advances the literature on the effect of decentralization on corruption by proposing a theoretical motivation for the hypothesis that the corruptionminimizing decentralization arrangement prescribes intermediate decentralization degrees: a ‘middle’ decision-making power of local governors may mitigate the tradeoff between the rent-seeking incentive for local politicians and the effectiveness of their voters’ monitoring. The estimation of a non-linear empirical model strongly confirms that a decentralization degree between 15% and 21% minimizes corruption even through different estimation procedures, introduction of control variables and the use of internal and external IV and of alternative decentralization and corruption measurements.

Suggested Citation

  • Alfano Maria Rosaria & Baraldi Anna Laura & Cantabene Claudia, 2019. "The Effect of Fiscal Decentralization on Corruption: A Non-linear Hypothesis," German Economic Review, De Gruyter, vol. 20(1), pages 105-128, February.
    • Handle: RePEc:bpj:germec:v:20:y:2019:i:1:p:105-128
    DOI: 10.1111/geer.12164
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    2. Sidra Naeem & Rana Ejaz Ali Khan, 2021. "Fiscal Decentralization and Gender Equality in Developing Economies: Dynamics of Income Groups in Economies and Corruption," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(9), pages 745-761, September.
    3. Anisah Alfada, 2019. "Does Fiscal Decentralization Encourage Corruption in Local Governments? Evidence from Indonesia," JRFM, MDPI, vol. 12(3), pages 1-14, July.

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