Working Paper: CEPR ID: DP15891
Authors: Gianmarco Daniele; Tommaso Giommoni
Abstract: We study how policies limiting the spending capacity of local governments may reduce corruption.We exploit the extension of one such policy, the Domestic Stability Pact (DSP), tosmall Italian municipalities. The DSP led to a decrease in both recorded corruption rates andcorruption charges per euro spent. This effect emerges only in areas in which the DSP puta binding cap on municipal capital expenditures. The reduction in corruption is linked toaccountability incentives as it emerges mostly in pre-electoral years and for re-eligible mayors.We then estimate the impact of the extension of the DSP on local public good provision in thefollowing years, finding a null effect in the short run. Overall, our findings suggest that budgetconstraints might induce local governments to curb expenditures in a way that dampens theirexposure to corruption without depressing local welfare.
Keywords: corruption; austerity; fiscal rules; european funds; local public finance; public procurement
JEL Codes: D72; D73; H62; H72; K34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduction in corruption rates (H57) | increased accountability incentives (M52) |
| Domestic Stability Pact (DSP) (F55) | binding caps on capital expenditures (G31) |
| binding caps on capital expenditures (G31) | reduction in corruption rates (H57) |
| Domestic Stability Pact (DSP) (F55) | reduction in corruption rates (H57) |
| Domestic Stability Pact (DSP) (F55) | no significant short-term effects on local public good provision (H41) |