Working Paper: NBER ID: w22443
Authors: Eric Avis; Claudio Ferraz; Frederico Finan
Abstract: Political corruption is considered a major impediment to economic development, and yet it remains pervasive throughout the world. This paper examines the extent to which government audits of public resources can reduce corruption by enhancing political and judiciary accountability. We do so in the context of Brazil’s anti-corruption program, which randomly audits municipalities for their use of federal funds. We find that being audited in the past reduces future corruption by 8 percent, while also increasing the likelihood of experiencing a subsequent legal action by 20 percent. We interpret these reduced-form findings through a political agency model, which we structurally estimate. Based on our estimated model, the reduction in corruption comes mostly from the audits increasing the perceived threat of the non-electoral costs of engaging in corruption.
Keywords: government audits; corruption; political accountability; Brazil; anticorruption program
JEL Codes: H41; H77; H83; K42; O1; O38; O43; O54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Being audited in the past (M42) | Future corruption levels (D73) |
| Being audited in the past (M42) | Legal actions against mayors (K49) |
| Audits (M42) | Perceived threat of detection (K42) |
| Perceived threat of detection (K42) | Corruption levels (H57) |
| Audits in neighboring municipalities (H70) | Corruption levels in adjacent municipalities (H70) |