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Corruption and distortion of public expenditures: evidence from Africa

International Tax and Public Finance volume 30, pages 419–452 (2023)Cite this article

Abstract

This study investigates the effect of corruption on the trade-off between capital and current expenditures in a panel of 48 African countries over the period 2000–2016. Based on statistical yearbooks, we compile disaggregated data on public finances for African countries and find that a high prevalence of corruption distorts the composition of public expenditures at the expense of the share of capital expenditure. Specifically, an increase in corruption by one standard deviation is associated with a decrease in the proportion of capital expenditure from 29 to 18%. The results are robust to various specifications and estimation methods, including the fixed effects and instrumental variables approach. The supportive argument demonstrates that it seems more beneficial for corrupted bureaucrats to manipulate public spending in favor of current rather than capital expenditures. The latter relies on formal and traceable procedures, whereas current expenditure is known to be more open to the use of discretionary allocation.

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Notes

  1. For the positive effect of corruption, see for example Leff (1964); Huntington (1968); Lui (1985). For the negative effect, see Krueger (1974); Shleifer and Vishny (1993).

  2. Such as roads, irrigation, electricity, communication and education.

  3. by applying this formula: (Max(Control of corruption)- Control of corruption)/(Max(Control of corruption)-Min(Control of corruption)).

  4. Total expenditures here include capital expenditure, current expenditure and net lending. Although net lending accounts for less than 1% of total expenditures on average over the period, its variability could lead to an underestimation or overestimation of the trade-off effect between capital and current expenditures. To account for this potential problem, we relate capital expenditure directly to current expenditure. The estimation results with the proportion of capital expenditure in current expenditure as the dependent variable are reported in the Appendix, Table 11. Corruption significantly reduces the proportion of capital expenditure in current expenditure. The coefficients are even slightly larger than those in Table 2.

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Acknowledgements

We would like to thank the two anonymous referees, Dramane Coulibaly and Elizavetta Dorinet, for their valuable comments and suggestions. We also thank the participants at the International Conference on Culture, Institutions and Economic Development of American Studies Center held in Matera (Italy) on October 24–25, 2019, and at the EconomiX Lab seminar (Paris Nanterre University) for their helpful comments.

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  1. EconomiX-CNRS, Paris Nanterre University, 200 avenue de la République, 92001, Nanterre Cedex 1, France

    Harouna Sedgo

  2. BETA-CNRS, Lorraine University, Nancy, France

    Luc Désiré Omgba

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  1. Harouna Sedgo
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  2. Luc Désiré Omgba
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Correspondence to Harouna Sedgo.

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We would like to thank the two anonymous referees, Dramane Coulibaly and Elizavetta Dorinet, for their valuable comments and suggestions. We also thank the participants at the International Conference on Culture, Institutions and Economic Development of American Studies Center held in Matera(Italy) on October 24–25, 2019, and at the EconomiX Lab seminar (Paris Nanterre University) for their helpful comments.

Appendix

Appendix

1.1 Estimation with alternative dependent variable: capital expenditure proportion in current expenditure

See Table 11.

Table 11 Corruption and capital expenditure proportion: fixed effects estimation with alternative dependent variable
Full size table

1.2 Countries of the study sample

See Table 12.

Table 12 Sample composition
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Sedgo, H., Omgba, L.D. Corruption and distortion of public expenditures: evidence from Africa. Int Tax Public Finance 30, 419–452 (2023). https://doi.org/10.1007/s10797-021-09718-6

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Keywords

  • Corruption
  • Capital expenditure
  • Current expenditure
  • Public expenditure
  • Africa

JEL Classification

  • D73
  • E62
  • H5
  • O55