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Corruption, Public Procurement, and the Budget Composition: Theory and Evidence from OECD Countries

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  • Zohal Hessami

    (Department of Economics, University of Konstanz, Germany)

Abstract

This paper examines the relationship between corruption and the composition of public expenditures. First, I derive a theoretical model that links the degree of corruption in a country - to be understood as the prevailing culture of corruption - to distortions in the budget composition. The transmission channel is a rent-seeking contest where firms from different sectors pay bribes to politicians and bureaucrats to influence public procurement decisions, which give rise to endogenous rents. I then test the implications of the theoretical model with a dataset covering 29 OECD countries over the 1996-2009 period. Consistent with theoretical predictions, the relative share of expenditures on categories that involve public procurement, high-technology goods, and non-competitive markets (health and environmental protection including waste management) increases with corruption. This distortion occurs at the expense of spending categories that do not involve public procurement (social protection and recretion, culture and religion).

Suggested Citation

  • Zohal Hessami, 2013. "Corruption, Public Procurement, and the Budget Composition: Theory and Evidence from OECD Countries," Working Paper Series of the Department of Economics, University of Konstanz 2013-27, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1327
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    2. Enste, Dominik & Heldman, Christina, 2017. "Causes and consequences of corruption: An overview of empirical results," IW-Reports 2/2017, Institut der deutschen Wirtschaft (IW) / German Economic Institute.

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    More about this item

    Keywords

    Corruption; rent-seeking; public procurement; budget composition;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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