Title: The effect of fiscal decentralization on corruption: cross-country evidence
Authors & affiliations: Adina Trandafir, Laura Iacob, Spiru Haret University, Constanţa, Romania
Abstract:
The impact of fiscal decentralization on the quality of governance of a country can have both positive and negative effects. In the search for appropriate governance structures for public decision-making, this paper focuses on a particular aspect of governance quality, namely corruption.
The degree of decentralization refers to the degree of freedom of local authorities to collect revenues (through taxes) and decide how to spend them. Since corruption is defined as the abuse of public office for private purposes, to be corrupt, a public official must be responsible for financial resources, which happens under fiscal decentralization.
This paper aims to analyze the relationship between fiscal decentralization and corruption at the regional level (NUTS 2), considering data from the Romania’s eight development regions.
For this purpose, based on the models developed in previous studies, the paper estimates an empirical model to establish the link and its direction between the dependent variable – the corruption index calculated according to the ICRG Methodology and the independent variable – fiscal decentralization. The share of local expenditures/revenues in total expenditures/revenues was used as an indicator of the degree of decentralization. In this case, it is considered that the higher the share of expenditures/revenues managed by politicians and local authorities in total is, it increases the degree of decentralization.
Keywords: Fiscal decentralization, Governance Quality, Corruption, International Country Risk Guide (ICRG), Local Governance
JEL Classification: E62, H71