DOI: https://doi.org/10.18371/fcaptp.v1i28.163927

THE IMPACT OF CORRUPTION ON THE EFFICIENCY OF PUBLIC SPENDING ACROSS COUNTRIES WITH DIFFERENT LEVELS OF DEMOCRACY

B. S. Malyniak, O. M. Martyniuk, O. P. Kyrylenko

Abstract


Corruption, being linked to institutions of power, affects the efficiency of using public funds in a country. This happens, in particular, due to distortions in the structure of public expenditure, worsening quality and decreasing accessibility of public services, and overpricing of public services. The consequences of corruption that arise in different areas of human activity often become subject of scientific investigations performed by reputable scientists. However, the issue of the impact of corruption on public spending efficiency in the countries with different levels of democratic development has not been researched. The aim of this study is to determine the impact of corruption on the efficiency of public spending across the world (in 166 countries for the period from 2004 until 2017). The research is carried out by applying regression analysis to indicators characterizing the level of corruption and the efficiency of public spending obtained from large-scale survey data collected by major international organizations and aggregated in the World Bank’s “World Development Indicators” database. The analysis is also performed by using k-means clustering method to group countries into 4 clusters by the level of democracy and to build refined one-factor econometric models for each of them.

The study revealed strong correlation relationship between corruption and public spending efficiency. It has been determined that a unit increase in corruption perceptions (a decrease in corruption) leads to a marginal increase in the efficiency of public spending by 0.931 units in the simple linear regression model and by 0.807 units in the multiple regression model. The study also showed that the impact of corruption on public spending varies depending on the level of democracy in a country. In the countries with low democracy levels, a unit decrease in corruption increases the efficiency of public spending by 0.923 units, whereas a similar decrease in corruption in the countries with high democracy levels will increase public spending efficiency only by 0.701 units. The findings of this study allow us to determine with higher accuracy the effects of corruption reduction measures on the efficiency of public spending.


Keywords


public sector; budget; corruption; public services; public procurement.

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References


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GOST Style Citations


Tanzi V. Corruption, Growth, and Public Finances [Text] / V. Tanzi, H. R. Davoodi // IMF Working Paper. — 2000. — WP/00/182. — 26 p.

D’Agostinoa G. Government Spending, Corruption and Economic Growth [Text] / G. D’Agostinoa, J. P. Dunne, L. Pieroni // World Development. — 2016. — Vol. 84. — P. 190—205.

Gupta S. Corruption: Costs and Mitigating Strategies [Text] / S. Gupta, C. Ogada, B. Akitoby, etc. // IMF Staff Discussion Notes. — 2016. — May. — 43 p.

Wu Sh. Government expenditure, corruption and total factor productivity [Text] / Sh. Wu, B. Li, Q. Nie, Ch. Chen // Journal of Cleaner Production. — 2017. — Vol. 168. — P. 279—289.

Liu Ch. The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. [Text] / Ch. Liu, J. L. Mikesell // State Spending. Public Administration Review. — 2014. — Vol. 74. — P. 346—359.

Hessami Z. Political corruption, public procurement, and budget composition: Theory and evidence from OECD countries [Text] / Z. Hessami // European Journal of Political Economy. — 2014. — Vol. 34. — P. 372—389.

Rajkumar A. S. Public Spending and Outcomes: Does Governance Matter? [Text] / A. S. Rajkumar, V. Swaroop // Journal of Development Economics. — 2008. — № 86 (1). — P. 96—111.

Olken B. A. Corruption and the Costs of Redistribution: Micro Evidence from Indonesia [Text] / B. A. Olken // Journal of Public Economics. — 2006. — Vol. 90. — P. 853—870.

Rema H. Dishonesty and Selection into Public Service: Evidence from India American Economic [Text] / H. Rema, W. Shing-Yi // Journal Economic Policy. — 2017. — Vol. 9. — № 3. — P. 262—90.

Lewis D. B. Local government spending and service delivery in Indonesia: the perverse effects of substantial fiscal resources [Electronic resource] / D. B. Lewis // Regional Studies. — 2016. — Available at: https://acde.crawford.anu.edu.au/sites/default/files/publication/acde_crawford_anu_edu_au/2016-11/lewisb_local_government_spending_in_indonesia_2016.pdf

Banerjee R. Corruption, Norm Violation and Decayin Social Capital [Text] / R. Banerjee // Journal of Public Economics. — 2016. — Vol. 137. — P. 14—27.

Mauro P. Corruption and the Composition of Government Expenditure [Text] / P. Mauro // Journal of Public Economics. — 1998. — № 69 (2). — P. 263—79.

Tanzi V. Corruption, Public Investment, and Growth [Text] / V. Tanzi, H. R. Davoodi // Governance, Corruption, and Economic Performance / editors G. T. Abed, S. Gupta. — Washington : International Monetary Fund, 2002.

Hall D. Corruption and public services [Text] / D. Hall // Public Services International Research Unit (PSIRU). - 2012. - 50 p.

Monte A. Public Expenditure, Corruption, and Economic Growth: The case of Italy [Text] / A. Monte, E. Papagni // European Journal of Political Economy. — 2001. — № 17 (1). — P. 1—16.

Burguet R. Procurement Design with Corruption [Text] / R. Burguet // American Economic Journal: Microeconomics. — 2017. — № 9 (2). — P. 315—341.

Mandl U. The effectiveness and efficiency of public spending [Text] / U. Mandl, A. Dierx, F. Ilzkovitz // European economy. Economic papers. — 2008. — № 301. — 34 p.

Bazzi S. Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth [Text] / S. Bazzi, M., A. Clemens // American Economic Journal: Macroeconomics. — 2013. — № 5 (2). — P. 152—86.

Boffa F. Political centralization and government accountability [Text] / F. Boffa, A. Piolatto, G. A. M. Ponzetto // The Quarterly Journal of Economics. — 2016. — Vol. 131. — P. 381—422.

Treisman D. The causes of corruption: A cross-national study [Text] / D. Treisman // Journal of Public Economics. — 2000. — Vol. 76. — № 3. — P. 399—457.

The Worldwide Governance Indicators [Electronic resource] / The World Bank Group. — Available at: http://info.worldbank.org/governance/wgi/index.aspx#home.

Democracy Index 2017. Free speech under attack [Electronic resource] // The Economist Intelligence Unit. — 2018. — Available at: https://pages.eiu.com/rs/753-RIQ-438/images/Democracy_Index_2017.pdf.





Copyright (c) 2019 B. S. Malyniak, O. M. Martyniuk, O. P. Kyrylenko

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ISSN (print) 2306-4994, ISSN (on-line) 2310-8770