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Explaining leakage of public funds

Author

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  • Reinikka, Ritva
  • Svensson, Jakob

Abstract

Using panel data from a unique survey of public primary schools in Uganda, The authors assess the degree of leakage of public funds in education. The survey data reveal that on average during 1991-95 schools received only 13 percent of the central government's allocation for the schools'nonwage expenditures. Most of the allocated funds were used by public officials for purposes unrelated to education or captured for private gain (leakage). The survey data also reveal large variations in leakage across schools. A small set of school-specific variables can explain a significant part of this variation. Specifically, the authors find that larger schools receive a larger share of the intended funds per student. Schools with children of wealthier parents also experience a lower degree of leakage, while schools with a higher share of unqualified teachers receive less. After addressing potential selection and measurement issues, the authors show that these school characteristics have a quantitatively large impact on the degree of leakage. The findings are consistent with the view that resource flows-and leakage-are endogenous to schools'sociopolitical endowment. Rather than being passive recipients of flows from government, schools use their bargaining power relative to other parts of government to secure greater shares of funding. Public resources are therefore not allocated according to the rules underlying the government's budget decisions, with obvious equity and efficiency implications. The survey findings had a direct impact on policy in Uganda. As evidence on the degree of leakage became public knowledge, the central government enacted a number of changes: it began publishing monthly transfers of public funds to the districts in newspapers, broadcasting them on radio, and requiring schools to post information on inflow of funds. An initial assessment of these reforms shows that the flow of funds improved dramatically, from 13 percent on average reaching schools in 1991-95 to around 90 percent in 1999. These improvements emphasize the role of information in mobilizing"voice"for better public expenditure outcomes.

Suggested Citation

  • Reinikka, Ritva & Svensson, Jakob, 2001. "Explaining leakage of public funds," Policy Research Working Paper Series 2709, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2709
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    References listed on IDEAS

    as
    1. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    2. Di Tella, Rafael & Schargrodsky, Ernesto, 2003. "The Role of Wages and Auditing during a Crackdown on Corruption in the City of Buenos Aires," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 269-292, April.
    3. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 275-297, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    General Technology; Information Technology; Sustainable Land and Crop Management; Knowledge Economy; Telecommunications Infrastructure; National Governance; Health Monitoring&Evaluation; Teaching and Learning; Primary Education; Gender and Education;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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