Fiscal Decentralization and Local Corruption in International Comparison
On June 8, 2018, Maria Rosaria Alfano, Anna Laura Baraldi and Claudia Cantabene have published an article entitled “The Effect of Fiscal Decentralization on Corruption: A Non‐linear Hypothesis” in German Economic Review.
A Blog Post by Pablo Markin.
In her econometric paper, Maria Rosaria Alfano, Anna Laura Baraldi and Claudia Cantabene have investigated the interrelations between fiscal decentralization and corruption based on the premise that “a ‘middle’ decision‐making power of local governors may mitigate the tradeoff between the rent‐seeking incentive for local politicians and the effectiveness of their voters’ monitoring” (105). Indeed, their findings indicate that “a decentralization degree between 15% and 21% minimizes corruption” (105).
In their study, Alfano, Baraldi and Cantabene have defined decentralization as “the degree of discretion of local authorities to raise revenue (through taxes) and to decide how to spend it” (105) and corruption as “the abuse of public office for private gain” (105). For their model estimations, the researchers have used “the Corruption index provided by the International Country Risk Guide (ICRG)” (108). To measure the decentralization degree, “fiscal decentralization indicators in the World Bank, Inter-governmental Relations and Subnational Finance, for the years 1980–2010” (109) were used. In addition, real per capita GDP, population size indicators, government stability, general government consumption expenditure, political accountability, trade openness, the proportion of seats held by women in national parliaments and ethno-linguistic fractionalization have been used as control variables (109-110). The empirical analyses, based on the “estimation of a non-linear model” (122) by these researchers, have utilized panel data for 55 countries from the period between 1984 and 2010 (111).
The empirical results of these authors are in line with past scholarly literature that suggests that “fiscal decentralization, rather than government fragmentation, has the largest impact on corruption (Fiorino et al., 2013)” (106). They suggest that “[l]ocal politicians, in a […] decentralized setting, on the one hand have an incentive to perform in the voters’ interests because they are monitored by them, and, on the other, as the local resources they manage are limited, they have little incentive to ‘siphon off’ part of such resources for personal use” (122).
By Pablo Markin
Featured Image Credits: Protests against the corruption, Maribor, Slovenia, November 26, 2012 | © Courtesy of Jumpin’Jack /Flickr.