Fiscal Decentralization and Corruption in the Public Sector

• Main Author: Tumennasan, Bayar
• Format: Others
• Published: Digital Archive @ GSU 2005
• Subjects: Corruption; Decentralization; Economics
• Online Access: http://digitalarchive.gsu.edu/econ_diss/8; http://digitalarchive.gsu.edu/cgi/viewcontent.cgi?article=1007&context=econ_diss

This dissertation explores the relationship between fiscal decentralization and corruption. Theoretically, it is shown that decentralization has a potential to induce public officials to reduce the bribes they charge from entrepreneurs. That would encourage firms to enter the economy. Consistent with the theoretical model, we find empirical evidence that suggests that fiscal decentralization causes public officials to reduce the bribes they charge per firm; thus decentralization lowers the bribery cost to entrepreneurs. Empirical analysis is based on cross country study and panel data study where appropriate. Secondly, not all aspects of fiscal decentralization have an equal impact on corruption. Based on a cross state analysis, we find that states that decentralize revenue raising authority and give more revenue authority to local governments were perceived to be less corrupt. Cross state analysis is appealing because many of the political and institutional factors are held fixed. Overall, the findings suggest that fiscal decentralization can potentially help to control public corruption and create favorable conditions for the private sector. If revenue authorities are devolved to subnational levels, then the effect might be even greater. The effects of various aspects of decentralization on corruptibility of government and the quality of public office have not been tested before and are of great interest to policymakers. These finding are of great interest to developing and transition countries trying to control corruption.