The effects of revealing the prosecution of political corruption on local finances

Joaquín Artés (), Juan Jiménez González and Jordi Perdiguero
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Joaquín Artés: Universidad Complutense de Madrid

Empirical Economics, 2023, vol. 64, issue 1, No 10, 249-275

Abstract: Abstract This paper analyzes the financial implications on local public budgets of disseminating information about the prosecution of political corruption at the local level. We build a database from a wave of corruption scandals in Spain to use a quasi-experimental design and find that after corruption is revealed, both local public revenues and expenditures decrease significantly (approximately by 7 and 5%, respectively) in corruption-ridden municipalities. The effect lasts for a period of time equivalent to a full electoral term and comes mostly from other economic agents’ unwillingness to fund or start new projects in municipalities where the prosecution of corruption has been revealed. These results imply that if one of the consequences of corruption is the inefficient allocation of funds to areas where corrupt politicians can extract more rents, the revelation of the corruption scandal frees up resources that can be used to fund activities with a higher social return.

Keywords: Revealed corruption; Public expenditures; Public revenues (search for similar items in EconPapers)
JEL-codes: D72 D78 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00181-022-02244-2

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