The Impact of an Unexpected Wage Cut on Corruption: Evidence from a 'Xeroxed' Exam

38 Pages Posted: 23 Jun 2012

See all articles by Oana Borcan

Oana Borcan

Göteborg University

Mikael Lindahl

University of Bonn; IZA Institute of Labor Economics

Andreea Mitrut

Göteborg University

Abstract

This paper aims to understand how corruption responds to financial incentives and, in particular, it is an attempt to identify the causal impact of a wage loss on the prevalence of corruption in the education sector. Specifically, we exploit the unexpected wage cut in May 2010 that affected all Romanian public sector employees, including the public education staff, and examine its effect on students' scores on the high-stakes national exam which occurs at the end of high school – the Baccalaureate. To exploit the effect of an income shock on corruption, we use a difference-in-difference strategy and compare the change in the exam outcomes between the public schools – the treatment group – and the private schools – the control group, which were unaffected by the wage cut. Our findings suggest that the wage loss led the public schools to have better exam outcomes than the private schools in 2010 relative to 2009. We attribute this difference to the increased involvement in corrupt activities by public school staff, which was driven by financial incentives. These results match an unprecedentedly high number of allegations of fraud and bribery against school principals, which earned the 2010 Baccalaureate the title of the Xeroxed exam – akin to identical test answers found to have been distributed to numerous students.

Keywords: high-stakes tests, bribes, school principals

JEL Classification: I2, H7, J3

Suggested Citation

Borcan, Oana and Lindahl, Mikael and Mitrut, Andreea, The Impact of an Unexpected Wage Cut on Corruption: Evidence from a 'Xeroxed' Exam. IZA Discussion Paper No. 6646. Available at SSRN: https://ssrn.com/abstract=2089695

Oana Borcan (Contact Author)

Göteborg University ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Mikael Lindahl

University of Bonn ( email )

Postfach 2220
Bonn, D-53012
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andreea Mitrut

Göteborg University ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

HOME PAGE: http://www.hgu.gu.se/item.aspx?id=3081

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