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Decentralization and corruption - evidence across countries

  • Fisman, Raymond
  • Gatti, Roberta

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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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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  1. Ades, Alberto & Di Tella, Rafael, 1997. "National Champions and Corruption: Some Unpleasant Interventionist Arithmetic," Economic Journal, Royal Economic Society, vol. 107(443), pages 1023-42, July.
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  4. Besley, Timothy J. & Coate, Stephen, 2000. "Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Analysis," CEPR Discussion Papers 2495, C.E.P.R. Discussion Papers.
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  17. . 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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  20. International Monetary Fund, 1997. "Corruption and the Rate of Temptation; Do Low Wages in the Civil Service Cause Corruption?," IMF Working Papers 97/73, International Monetary Fund.
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