Do fiscal decentralization and government fragmentation affect corruption in different ways? Evidence from a panel data analysis

Abstract

Are countries characterized by more decentralized fiscal and spending powers less corrupt? Or is a higher degree of government fragmentation a more effective way to reduce and deter corruption? And finally, is there any evidence that these alternative ways to enhance government accountability reinforce or hinder each other? These are the three questions that the empirical analysis presented in this chapter will try to answer. The idea that centralization brings about high levels of rent-seeking, corruption and lack of accountability of government officials is behind the demand for greater decentralization that has characterized many OECD and non OECD countries since the 1990s (Rodden et al., 2003; Arzaghi and Henderson, 2005; Bardhan and Mookherjee, 2005). These decentralization reforms have taken two main directions: the devolution of tax and spending power to sub-national governments, i.e. fiscal decentralization, and/or the increase in the number of sub-national units of government, i.e. government fragmentation. There is still much debate over which of the two facets of decentralization shows a greater effectiveness in deterring corruption and improving the quality of governance. So far neither has the theoretical literature drawn unambiguous predictions nor has the empirical one produced conclusive evidence

Desentralisasi fiskal dan probabilitas terjadinya korupsi: Sebuah bukti empiris dari Indonesia

“…Penerapan desentralisasi fiskal terbukti dapat membantu mengendalikan korupsi di pemerintah daerah. Ini karena penerapan desentralisasi memudahkan masyarakat untuk mengawasi dan mendeteksi para pejabat-pejabat yang korup di daerahnya tersebut (Fiorino et al, 2012;Albornoz dan Cabrales 2013). Desentralisasi fiskal berkontribusi untuk mengurangi korupsi pada daerah yang memiliki anggaran belanja yang defisit (Peralías et al, 2013).…”

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

“…Numbers of papers confirm that decentralization supports greater accountability in the public sector and reduces corruption, even if this effect is greater in unitary rather than federal countries (Gurgur and Shah, ; Huther and Shah, ), and in developed countries rather than in developing countries (Fisman and Gatti, ; Ivanyna and Shah, ) . More recent panel data studies provide evidence that fiscal decentralization, rather than government fragmentation, has the largest impact on corruption (Fiorino et al ., ) and that this impact seems to act after three to five years (Fiorino et al ., ). Treisman () provides evidence for the opposite: by creating many levels of government, decentralization reduces accountability…”

Tying decentralization and income redistribution to fight corruption: Empirical evidence from developed and developing countries

“…[55]seems to support this observation; government fragmentation (level of fragmentation) is also included though the empirical evidence on how it affects corruption-see, for instance, Fiorino et al [56]-is inconclusive; the size of government (government expenditures as a share of GDP) is added to capture the impact of government intervention on corruption. The empirical evidence on this relationship is mixed, with some studies showing that larger governments increase corruption (e.g., [57]) while others find the opposite result (e.g., [58]).…”