Decentralization, political competition and corruption

Abstract

We study the effect of decentralization on corruption in a political agency model from the perspective of a region. In a model where corruption opportunities are lower under centralization at each period of time, decentralization makes easier for citizens to detect corrupt incumbents. As a consequence, the relationship between fiscal decentralization and corruption is conditional on political competition: decentralization is associated with lower (higher) levels of corruption for sufficiently high (low) levels of political competition. We test this prediction and find it is empirically supported. Also, we show how the preferences of voters and politicians about fiscal decentralization can diverge in situations where political competition is weak. JEL-Classification: H11, D72, D73, P16

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

“…4. Few papers have tried to solve this 'puzzle' by discussing other 'channels' through which decentralization affects corruption, that is, political institutions (Enikolopov and Zhuravskaya, 2007), political competition (Albornoz and Cabrales, 2013) and the monitoring of bureaucrats (Lessmann and Markwardt, 2010). Fan et al (2009) suggest that mixed results crucially depend on the poor quality of data used in empirical analysis, mainly the use of indexes of perceived corruption instead of experience-based measures.…”

The Effects of Fiscal Decentralization on Publicly Provided Services and Labor Markets

“…Several papers, however, question the effectiveness of these positive mechanisms. Local taxes, for example, might not be able to increase the accountability of local politicians if existing political competition is not sufficiently high (Albornoz and Cabrales, 2013). Similarly, compared with central policy makers, local administrators might be more easily influenceable by local elites (Oates, 1993;Bardhan and Mookherjee, 2000).…”

Does Fiscal Decentralization Affect Infrastructure Quality? An Examination of U.S. States

“…In particular, more centralized countries tend to have greater levels of political corruption. Fisman and Gatti (), Albornoz and Cabrales (), and Fan et al () all find that more fiscally decentralized countries tend to be less corrupt making it easier for citizens to identify corrupt behavior among incumbents and reduces corruption . In addition to the national level, cross‐country analysis examining fiscal decentralization has occurred at the regional level.…”