Corruption Under Austerity

47 Pages Posted: 3 Mar 2021

See all articles by Gianmarco Daniele

Gianmarco Daniele

University of Milan - Faculty of Law; Bocconi University

Tommaso Giommoni

ETH Zürich

Multiple version iconThere are 2 versions of this paper

Date Written: 2021

Abstract

We study how policies limiting the spending capacity of local governments may reduce corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to small Italian municipalities. The DSP led to a decrease in both recorded corruption rates and corruption charges per euro spent. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures. The reduction in corruption is linked to accountability incentives as it emerges mostly in pre-electoral years and for re-eligible mayors. We then estimate the impact of the extension of the DSP on local public good provision in the following years, finding a null effect in the short run. Overall, our findings suggest that budget constraints might induce local governments to curb expenditures in a way that dampens their exposure to corruption without depressing local welfare.

JEL Classification: D720, D730, H620, H720, K340

Suggested Citation

Daniele, Gianmarco and Giommoni, Tommaso, Corruption Under Austerity (2021). CESifo Working Paper No. 8909, Available at SSRN: https://ssrn.com/abstract=3796656

Gianmarco Daniele (Contact Author)

University of Milan - Faculty of Law ( email )

Via Festa del Perdono, 7
20122 Milano
Italy

Bocconi University ( email )

Via Sarfatti 25
Milan, MI 20136
Italy

Tommaso Giommoni

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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