Revealed Corruption, Taxation and Fiscal Accountability: Evidence from Brazil
This version last revised July 2014. An appreciably cleaner, better and final version has been published in World Development 70:13–27, 2015. We encourage readers to consult it. Note that this paper initially circulated under the following title: “Government Performance, Taxationand Fiscal Accountab
58 Pages Posted: 1 Aug 2011 Last revised: 30 Jan 2015
Date Written: July 27, 2014
Fiscal contract theories hypothesize that government performance affects tax collection and that institutions that foster representation and accountability link taxes and services. These propositions rest on strong assumptions about information and have not been tested rigorously. We use municipal audit reports with objective measures of corruption from Brazil to assess whether new information about corruption affects municipal property tax collection and the structure of fiscal institutions. We find short-run effects consistent with this theory: property tax revenue rises with clean audit reports and falls as revealed corruption increases; furthermore revealed corruption increases the probability that a municipality adopts participatory budgeting. The effect of revealed corruption increases marginally when audits are released before elections, suggesting that elections are one, but not the sole, mechanism connecting revealed corruption with changes in fiscal outcomes. Our results indicate modest demand-side constraints on taxation and budgetary institutions that are consistent with fiscal contract theory.
Keywords: fiscal contract, taxation, corruption, accountability
JEL Classification: H1, H26, H72, N4
Suggested Citation: Suggested Citation