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Audit Risk and Rent Extraction: Evidence from a Randomized Evaluation in Brazil

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  • Yves Zamboni
  • Stephan Litschig

Abstract

We report results from a randomized policy experiment designed to test whether increased audit risk deters rent extraction in three areas of local government activity in Brazil: procurement, health service delivery and cash transfer targeting. Our estimates suggest that temporarily increasing annual audit risk by about 20 percentage points reduced the share of audited resources involved in corruption in procurement by about 10 percentage points and the proportion of procurement processes with evidence of corruption by about 15 percentage points. In contrast, we find no evidence that increased audit risk affected the quality of publicly provided preventive and primary health care services - measured through user satisfaction surveys - or compliance with eligibility requirements for the conditional cash transfer program - measured through household inspections. The observed impact heterogeneity across activities is consistent with differences in potential sanctions and in the probability that a sanction is applied, conditional on detection.

Suggested Citation

  • Yves Zamboni & Stephan Litschig, 2016. "Audit Risk and Rent Extraction: Evidence from a Randomized Evaluation in Brazil," Working Papers 554, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:554
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    References listed on IDEAS

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    1. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
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    6. Stephan Litschig & Yves Zamboni, 2008. "Judicial presence and rent extraction," Economics Working Papers 1143, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2012.
    7. 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.
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    9. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to reduce public procurement waste
      by Economic Logician in Economic Logic on 2012-09-05 19:49:00
    2. Random audits to reduce misappropriation of public resources
      by Economic Logician in Economic Logic on 2012-09-06 19:22:00

    Citations

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    Cited by:

    1. Dávid-Barrett, Elizabeth & Fazekas, Mihály, 2020. "Anti-corruption in aid-funded procurement: Is corruption reduced or merely displaced?," World Development, Elsevier, vol. 132(C).
    2. Gans-Morse, Jordan & Borges, Mariana & Makarin, Alexey & Mannah-Blankson, Theresa & Nickow, Andre & Zhang, Dong, 2018. "Reducing bureaucratic corruption: Interdisciplinary perspectives on what works," World Development, Elsevier, vol. 105(C), pages 171-188.
    3. Eric Avis & Claudio Ferraz & Frederico Finan, 2018. "Do Government Audits Reduce Corruption? Estimating the Impacts of Exposing Corrupt Politicians," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 1912-1964.
    4. Galletta, Sergio, 2017. "Law enforcement, municipal budgets and spillover effects: Evidence from a quasi-experiment in Italy," Journal of Urban Economics, Elsevier, vol. 101(C), pages 90-105.
    5. Fiala,Nathan V. & Premand,Patrick, 2018. "Social accountability and service delivery : experimental evidence from Uganda," Policy Research Working Paper Series 8449, The World Bank.
    6. Cavalcanti, Francisco & Daniele, Gianmarco & Galletta, Sergio, 2018. "Popularity shocks and political selection," Journal of Public Economics, Elsevier, vol. 165(C), pages 201-216.
    7. Stephan Litschig & Yves Zamboni, 2008. "Judicial presence and rent extraction," Economics Working Papers 1143, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2012.
    8. Daniel M. Sabet, 2020. "Auditing as a tool of government accountability? Exploring divergent causal mechanisms through three Honduran cases," Public Administration & Development, Blackwell Publishing, vol. 40(4), pages 209-219, October.
    9. Timmons, Jeffrey F. & Garfias, Francisco, 2015. "Revealed Corruption, Taxation, and Fiscal Accountability: Evidence from Brazil," World Development, Elsevier, vol. 70(C), pages 13-27.
    10. Muralidharan, Karthik & Das, Jishnu & Holla, Alaka & Mohpal, Aakash, 2017. "The fiscal cost of weak governance: Evidence from teacher absence in India," Journal of Public Economics, Elsevier, vol. 145(C), pages 116-135.
    11. Pomeranz, Dina & Gerardino, Maria Paula & Litschig, Stephan, 2017. "Distortion by Audit: Evidence from Public Procurement," CEPR Discussion Papers 12529, C.E.P.R. Discussion Papers.
    12. Framcisco Cavalcanti & Gianmarco Daniele & Sergio Galletta, 2016. "Popularity shocks and political selection : the effects of anti-corruption audits on candidates' quality," IdEP Economic Papers 1607, USI Università della Svizzera italiana.
    13. Horacio A. Larreguy & John Marshall & James M. Snyder, Jr., 2014. "Revealing Malfeasance: How Local Media Facilitates Electoral Sanctioning of Mayors in Mexico," NBER Working Papers 20697, National Bureau of Economic Research, Inc.
    14. Ramos, M., 2018. "Estimating the nature of political corruption: evidence from a policy experiment in Brazil," Research Department working papers 1391, CAF Development Bank Of Latinamerica.
    15. Dina Pomeranz, 2017. "Impact Evaluation Methods in Public Economics," Public Finance Review, , vol. 45(1), pages 10-43, January.

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    More about this item

    Keywords

    government audit; corruption; rents; cash transfer program; primary health care; service delivery;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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