Tuesday, May 27, 2014

Government Corruption

And interesting article published in April '14 looks at the prevalence and cost of corruption in U.S. state governments.

Popular thought suggests such things are uncommon in a first world democracy.  It's perhaps more common than is generally known.  

Capital, construction, and highways:

Click here to read the entire article 
with additional tables and references.
The construction industry is consistently ranked as one of the most corrupt industries. ... First, construction involves large, complex, nonstandard activities, so the quality of construction can be very hard to assess. Second, domestic and international construction industries are dominated by a few monopolistic firms. Third, the industry is closely linked to the government. Governments have major roles as “clients, regulators, and owners” of construction companies. It is common to bribe government officials to gain or alter contracts and to circumvent regulations related to construction.

The results show that real per capita state construction expenditures tend to be larger in states with higher levels of corruption, and the impact is statistically significant. This finding is consistent with the view that corrupt public officials increase expenditures on construction,
expecting bribes from construction companies.

Total wages and salaries and borrowing:

Total salaries and wages of public employees are likely to be higher in states with higher levels of corruption.
States with higher degrees of corruption tend to borrow larger amounts annually. 
The results correspond with the fiscal illusion theory of government expansion. Corrupt public officials may have stronger incentives to create fiscal illusions to make citizens estimate their fiscal burdens less than the actual by debt financing. An alternative explanation of this finding is related to the regression results of models II–IV in table 7. To undertake projects related to capital, construction, and highways, most states tend to rely on debt financing. Another interpretation of the significance of expenditures on these items is that corrupt officials are willing to increase expenditures on capital, construction, and highways because these projects offer better opportunities for them to receive rents. To finance these projects, states borrow more.

Correction and police protection:

States with a higher extent of corruption tend to spend more on correction and police protection. 
The overall extent of corruption will be higher in states with higher numbers of convictions of public officials. In a corrupt state, not just public officials but also citizens are likely to be exposed to corruption. Thus, in states with higher levels of corruption, the demand for correctional services such as prisons and police services will be greater. In addition, government officials have substantial discretionary power and economic rents related to government expenditures on correctional services. It is possible for corrupt officials to take advantage of these opportunities for their personal interests by maximizing state budgets for correctional facilities and services.

Education; elementary, secondary, higher:

Total expenditures on education are likely to decrease in states with higher levels of public officials’ corruption. 
The harmful impact of corruption on education persists even after expenditures on education is divided into subcategories: elementary and secondary education and higher education.16   These results imply that public officials’ corruption reduces states’ investment in education overall. These cross-state results are consistent with the findings from cross-national studies on education by Mauro (1997) and Delavallade (2006). Government spending on education is negatively and significantly associated with higher levels of corruption. Expenditures on education do not provide as many “lucrative” opportunities for corrupt officials as other components of spending such as construction.

Public welfare, health, and hospitals:  

State government expenditures on public welfare, health, and hospitals tend to be lower in states with higher degrees of corruption. 
As can be seen in models I, II, and III, public officials’ corruption is negatively and significantly associated with per capita state expenditures on public welfare, health, and hospitals. The results correspond with cross-national study results from Mauro (1997) and Delavallade (2006). Corruption may tempt public officials to choose public expenditures less on the basis of public welfare than on the opportunity they offer for extorting bribes.

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