Does fiscal decentralization mitigate the adverse effects of corruption on public deficit?
Publisher: Universidad de Sevilla
ISBN: 978-84-695-6945-0
Year of publication: 2013
Pages: 18
Congress: Encuentro de Economía Pública (20. 2013. Sevilla)
Type: Conference paper
Abstract
The current economic crisis has led several rich countries to expe rience severe fiscal deficits. Among other factors responsible for th e situation, corruption is considered harmful to public finances and appears closely relate d to fiscal deficits. This paper opens a new avenue in addressing the effects of co rruption on public deficits through fiscal decentralization. Focusing on a sample of 31 OECD countries over the period 1986-2010, we find that fiscal decentralization contri butes to mitigating the perverse effects of corruption in public deficits. In addition, our fi ndings indicate heterogeneity in the effect of fiscal decentralization, since it appears relate d 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