Title

Why are Corrupt Countries Less Successful in Consolidating Their Budgets

Author First name, Last name, Institution

K. Peren Arin
Viera Chmelarova
Eberhard Feess
Ansgar Wohlschlegel

Document Type

Article

Source of Publication

Journal of Public Economics

Publication Date

1-31-2011

Abstract

Following the financial crisis, many countries introduced fiscal stimulus packages making budget consolidations in the future rather challenging. Using a data set for 28 OECD countries spanning the period 1978"“2007, we contribute to the literature on success probabilities of consolidation attempts by exploring the impact of corruption, and in particular the interplay of corruption and the choice of the policy instrument. We find that corruption significantly reduces the success rate. When controlling for the change in government expenditures, however, the impact of corruption is insignificant or at least becomes less pronounced. We therefore relate the choice of the fiscal instrument to corruption and find that corrupt countries rely significantly less on expenditure cuts during periods of consolidation attempts. We conclude that international organizations should be careful in observing what corrupt countries do when trying to consolidate their budgets.

Publisher

Elsevier

Volume

95

First Page

521

Last Page

530

Disciplines

Business

Indexed in Scopus

no

Open Access

no

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