Does fiscal decentralization mitigate the adverse effects of corruption on public deficit?

Daniel Oto Peralías, Diego Romero-Ávila and Carlos Usabiaga

No 5690, EcoMod2013 from EcoMod

Abstract: The current economic crisis has led several rich countries to experience severe fiscal deficits. Among other factors responsible for the situation, corruption is considered harmful to public finances and appears closely related to fiscal deficits. This paper opens a new avenue in addressing the effects of corruption on public deficits through fiscal decentralization. Focusing on a sample of 31 OECD countries over the period 1986-2010, we find that fiscal decentralization contributes to mitigating the perverse effects of corruption in public deficits. In addition, our findings indicate heterogeneity in the effect of fiscal decentralization, since it appears related to lower deficits in countries with higher levels of corruption, but not in less corrupt countries. Therefore, the results suggest that bringing the government closer to the people in relatively corrupt countries may lead to a more responsible fiscal management See above See above

Keywords: Spain; Public finance and tax issues; Public finance and tax issues (search for similar items in EconPapers)
Date: 2013-06-21
New Economics Papers: this item is included in nep-law and nep-pbe
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Citations: View citations in EconPapers (19)

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Journal Article: Does fiscal decentralization mitigate the adverse effects of corruption on public deficits? (2013)
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