Corruption under Austerity

48 Pages Posted: 30 Jan 2020

See all articles by Gianmarco Daniele

Gianmarco Daniele

Bocconi University; Bocconi University - Baffi Carefin Centre

Tommaso Giommoni

ETH Zürich

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2020

Abstract

In this paper, we study how policies limiting the spending capacity of local governments may lead to a reduction in corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to Italian municipalities with less than 5,000 inhabitants that occurred in 2013. Using a ‘local Difference-in-Differences’ approach, we show that the extension of the DSP led to a substantial decrease in recorded corruption rates. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures, in line with the hypothesis that investments and procurement are naturally prone to corruptive phenomena. We also show that i) the reduction in corruption is linked to accountability incentives; ii) and it is not just a mechanical consequence of the decrease in investments, by pointing out evidence of an improvement in the corruption-proofness of public spending. We then estimate the impact of the extension of the DSP on local welfare, finding a null effect. Overall, our findings suggest that budget constrains might induce local governments to curb expenditures in a way that dampens their exposure to corruption without depressing local welfare.

Keywords: corruption, austerity, fiscal rules, European funds, local public finance, public procurement

JEL Classification: D72, D73, H62, H72, K34

Suggested Citation

Daniele, Gianmarco and Giommoni, Tommaso, Corruption under Austerity (January 20, 2020). Available at SSRN: https://ssrn.com/abstract=3522522 or http://dx.doi.org/10.2139/ssrn.3522522

Gianmarco Daniele (Contact Author)

Bocconi University ( email )

Bocconi University - Baffi Carefin Centre ( email )

Via Roentgen 1
Milan
Italy

Tommaso Giommoni

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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