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The effects of revealing the prosecution of political corruption on local finances

Author

Listed:
  • Joaquín Artés

    (Universidad Complutense de Madrid)

  • Juan Luis Jiménez

    (Universidad de Las Palmas de Gran Canaria)

  • Jordi Perdiguero

    (Universitat Autònoma de Barcelona)

Abstract

This paper analyzes the financial implications on local public budgets of disseminating information about the prosecution of political corruption at the local level. We build a database from a wave of corruption scandals in Spain to use a quasi-experimental design and find that after corruption is revealed, both local public revenues and expenditures decrease significantly (approximately by 7 and 5%, respectively) in corruption-ridden municipalities. The effect lasts for a period of time equivalent to a full electoral term and comes mostly from other economic agents’ unwillingness to fund or start new projects in municipalities where the prosecution of corruption has been revealed. These results imply that if one of the consequences of corruption is the inefficient allocation of funds to areas where corrupt politicians can extract more rents, the revelation of the corruption scandal frees up resources that can be used to fund activities with a higher social return.

Suggested Citation

  • Joaquín Artés & Juan Luis Jiménez & Jordi Perdiguero, 2023. "The effects of revealing the prosecution of political corruption on local finances," Empirical Economics, Springer, vol. 64(1), pages 249-275, January.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:1:d:10.1007_s00181-022-02244-2
    DOI: 10.1007/s00181-022-02244-2
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    More about this item

    Keywords

    Revealed corruption; Public expenditures; Public revenues;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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