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Explaining leakage of public funds

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  • Reinikka, Ritva
  • Svensson, Jakob

Abstract

Using panel data from a unique survey of public primary schools in Uganda, The authors assess the degree of leakage of public funds in education. The survey data reveal that on average during 1991-95 schools received only 13 percent of the central government's allocation for the schools'nonwage expenditures. Most of the allocated funds were used by public officials for purposes unrelated to education or captured for private gain (leakage). The survey data also reveal large variations in leakage across schools. A small set of school-specific variables can explain a significant part of this variation. Specifically, the authors find that larger schools receive a larger share of the intended funds per student. Schools with children of wealthier parents also experience a lower degree of leakage, while schools with a higher share of unqualified teachers receive less. After addressing potential selection and measurement issues, the authors show that these school characteristics have a quantitatively large impact on the degree of leakage. The findings are consistent with the view that resource flows-and leakage-are endogenous to schools'sociopolitical endowment. Rather than being passive recipients of flows from government, schools use their bargaining power relative to other parts of government to secure greater shares of funding. Public resources are therefore not allocated according to the rules underlying the government's budget decisions, with obvious equity and efficiency implications. The survey findings had a direct impact on policy in Uganda. As evidence on the degree of leakage became public knowledge, the central government enacted a number of changes: it began publishing monthly transfers of public funds to the districts in newspapers, broadcasting them on radio, and requiring schools to post information on inflow of funds. An initial assessment of these reforms shows that the flow of funds improved dramatically, from 13 percent on average reaching schools in 1991-95 to around 90 percent in 1999. These improvements emphasize the role of information in mobilizing"voice"for better public expenditure outcomes.

Suggested Citation

  • Reinikka, Ritva & Svensson, Jakob, 2001. "Explaining leakage of public funds," Policy Research Working Paper Series 2709, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2709
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    References listed on IDEAS

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    1. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-292, April.
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    Cited by:

    1. Margaret Koziol & Courtney Tolmie, 2010. "Using Public Expenditure Tracking Surveys to Monitor Projects and Small-Scale Programs : A Guidebook," World Bank Publications, The World Bank, number 2502.
    2. Reinikka, Ritva & Svensson, Jakob, 2011. "The power of information in public services: Evidence from education in Uganda," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 956-966, August.
    3. Rai, Ashok S., 2002. "Targeting the poor using community information," Journal of Development Economics, Elsevier, vol. 69(1), pages 71-83, October.
    4. Junaid Ahmad & Shantayanan Devarajan & Stuti Khemani & Shekhar Shah, 2006. "Decentralization and Service Delivery," Chapters,in: Handbook of Fiscal Federalism, chapter 10 Edward Elgar Publishing.
    5. World Bank, 2003. "Making Services Work for Poor People : The Role of Participatory Public Expenditure Management (PPEM)," World Bank Other Operational Studies 11318, The World Bank.
    6. Gudrun Kochendörfer-Lucius & Boris Pleskovic, 2004. "Berlin Workshop Series 2004 : Service Provision for the Poor--Public and Private Sector Cooperation," World Bank Publications, The World Bank, number 15027.
    7. Wokadala, James & Magidu, Nyende & Guloba, Madina & Barungi, Mildred, 2011. "Public Spending in the Water Sub-sector in Uganda: Evidence from Program Budget Analysis," Research Series 150476, Economic Policy Research Centre (EPRC).
    8. Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2008. "Does Aid for Education Educate Children? Evidence from Panel Data," World Bank Economic Review, World Bank Group, vol. 22(2), pages 291-314, April.
    9. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
    10. Anton Eberhard & Orvika Rosnes & Maria Shkaratan & Haakon Vennemo, 2011. "Africa's Power Infrastructure : Investment, Integration, Efficiency," World Bank Publications, The World Bank, number 2290.
    11. Rune Jansen Hagen, 2002. "Marginalisation in the Context of Globalisation: Why Is Africa so Poor?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 28, pages 147-179.
    12. Lessmann, Christian & Markwardt, Gunther, 2012. "Aid, Growth and Devolution," World Development, Elsevier, vol. 40(9), pages 1723-1749.
    13. Hillman, Arye L., 2002. "The World Bank and the persistence of poverty in poor countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 783-795, November.
    14. Levy, Daniel, 2007. "Price adjustment under the table: Evidence on efficiency-enhancing corruption," European Journal of Political Economy, Elsevier, vol. 23(2), pages 423-447, June.
    15. Khaleghian, Peyvand & Das Gupta Monica, 2004. "Public management and essential public health functions," Policy Research Working Paper Series 3220, The World Bank.
    16. Chaudhury, Nazmul & Hammer, Jeffrey S., 2003. "Ghost doctors - absenteeism in Bangladeshi health facilities," Policy Research Working Paper Series 3065, The World Bank.
    17. Aline Coudouel & Stefano Paternostro, 2005. "Analyzing the Distributional Impact of Reforms : A Practioner's Guide to Trade, Monetary and Exchange Rate Policy, Utility Provision, Agricultural Markets, Land Policy and Education, Volume 1," World Bank Publications, The World Bank, number 7251.
    18. Reinikka, Ritva & Svensson, Jakob, 2003. "Survey techniques to measure and explain corruption," Policy Research Working Paper Series 3071, The World Bank.
    19. Das, Jishnu, 2004. "Equity in educational expenditures : can government subsidies help?," Policy Research Working Paper Series 3249, The World Bank.
    20. Omar Azfar & Tugrul Gurgur, 2008. "Does corruption affect health outcomes in the Philippines?," Economics of Governance, Springer, vol. 9(3), pages 197-244, July.
    21. Warlters, Michael & Auriol, Emmanuelle, 2005. "The marginal cost of public funds in Africa," Policy Research Working Paper Series 3679, The World Bank.
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    23. Allen, Summer L. & Qaim, Matin, 2012. "Agricultural productivity and public expenditures in sub-saharan africa:," IFPRI discussion papers 1173, International Food Policy Research Institute (IFPRI).
    24. Eva Jenkner & Arye L. Hillman, 2002. "User Payments for Basic Education in Low-Income Countries," IMF Working Papers 02/182, International Monetary Fund.

    More about this item

    Keywords

    General Technology; Information Technology; Sustainable Land and Crop Management; Knowledge Economy; Telecommunications Infrastructure; National Governance; Health Monitoring&Evaluation; Teaching and Learning; Primary Education; Gender and Education;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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