Federalism, Decentralisation and Corruption
40 Pages Posted: 1 Jul 2007
Date Written: June 2007
We investigate the empirical relationship between decentralisation and corruption. Using a newly assembled dataset containing data for up to 174 countries, we revisit the empirical evidence and seek to explain the inconsistent results that exist in the relevant literature. We find that not only results differ due to the use of different specifications and data but more importantly because previous research overlooks the relationship between different dimensions of decentralisation. We propose an approach where more than one dimension of decentralisation enter the econometric model simultaneously. In this context, we analyze the existence of direct and indirect effects of these aspects on corruption. Our results suggest that both fiscal decentralisation and constitutional centralisation (unitarism) are simultaneously associated to lower corruption. Furthermore, we find that certain forms of political decentralisation (local elections) worsen the positive effect of constitutional centralisation on corruption. Finally, other forms of decentralisation such as structural decentralisation do not appear to have a strong association to corruption. We also test our results for robustness to different indicators and specification.
Keywords: Fiscal decentralisation, Corruption, Federalism, Political institutions
JEL Classification: H10, H40, H70, O10
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