The relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design. The theoretical literature makes ambiguous predictions about this relationship, and it has remained virtually unexamined by empiricists. In this paper, we make a first attempt at examining this issue empirically, by looking at the cross-country relationship between fiscal decentralization and corruption as measured by a number of different indices. Our estimates suggest a strong negative relationship between fiscal decentralization in government expenditure and corruption. Moreover, we find that legal origin performs extremely well as an instrument for decentralization. When instrumenting in this way, the estimated relationship between decentralization and corruption is even stronger. We thank Shantayanan Devarajan for useful conversations and seminar participants at the IX Conference of the Italian Society of Public Economics and the World Bank for valuable comments. The views expressed here do not necessarily reflect those of the World

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Using panel data from an unique survey of public primary schools in Uganda we assess the degree of leakage of public funds in education. The survey data reveal that on average, during the period 1991-95, schools received only 13 percent of what the central government contributed to the schools' non-wage expenditures. The bulk of the allocated spending was either used by public officials for purposes unrelated to education or captured for pri- vate gain (leakage). Moreover we find that resource flows and leakages are endogenous to schools' socio-political endowment. Rather than being passive recipients of flows from government, schools use their bargaining power vis--vis other parts of government to secure greater shares of funding.

Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative. 1

This study uses a cross-country panel to examine the determinants of corruption, paying particular attention to political institutions that increase political accountability. Previous empirical studies have not analyzed the role of political institutions, even though both political science and economics theoretical literatures have indicated their importance in determining corruption. The main theoretical hypothesis guiding our empirical investigation is that political institutions affect corruption through two channels: political accountability and the structure of provision of public goods. The main results show that political institutions seem to be extremely important in determining the prevalence of corruption. In short, democracies, parliamentary systems, political stability, and freedom of press are all associated with lower corruption. Additionally, we show that common results of the previous empirical literature on the determinants of corruption -- related to openness and legal tradition -- do not hold once political variables are taken into account.

Humanities Research Council of Canada for providing financial support. I thank John van

This paper examines the collapse of the Italian postwar party system in 1992, and documents that international economic factors contributed significantly to the end of Christian Democratic hegemony. The paper speculates that the reason may be that the prospect of European monetary integration changed the preferences of important social groups in Italy so that they came to favor a change of regime in order to obtain significant changes in public policy. The paper proposes three channels of transmission from the international environment to domestic political change: an electoral channel, a party channel, and an interest group channel. I examine the first with a statistical analysis of the impact of trade openness on the extent of the DC vote loss in 1992, documenting that trade openness was a significant determinant of the DC's change in vote share across Italy's electoral districts. Likewise, I show that the share of votes going to the Northern League was significantly related to exposure to int...

Many recent studies have looked at the macroeconomic, cultural and institutional determinants of corruption at the cross-national level. Using enterprise-level data on bribes paid to utilities in 21 transition economies in Eastern Europe and Central Asia, we examine how characteristics of the utilities taking bribes and the firms paying bribes affect the equilibrium level of corruption in the sector. Bribe takers (utility employees) are more likely to take bribes in countries with greater constraints on utility capacity, lower levels of competition in the utility sector, and where utilities are state-owned. Bribe payers (enterprises) are more likely to pay bribes when they are more profitable, have greater overdue payment to utilities, and are de novo private firms. Our study has several advantages over most existing studies. First, it uses an objective measure of corruption, rather than a subjective measure. Second, the large firm-level sample, which includes firms from multiple countries, allows us to examine both firm-level and national factors that might affect corruption. Finally, we are able to examine the behavior of both bribe takers and bribe payers.

We theoretically and empirically examine the relationship between natural resource revenues and financial development. In the theoretical part, we present a politico-economic model in which contract enforcement is low and decreasing in resource revenues when political institutions are poor, but high otherwise. As poor contract enforcement leads to low financial development, the model predicts that resource revenues hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We test our theoretical predictions systematically using panel data covering the period 1970 to 2005 and 133 countries. Our estimates confirm our theoretical predictions. Our main results hold when we control country fixed effects, time varying common shocks, income and various additional covariates. They are also robust to alternative estimation techniques, various alternative measures of financial development and political institutions, as well as across different samples and data frequencies. We present further evidence using panel data covering the period 1870 to 1940 and 31 countries.