Tax Revenue Decentralisation and Corruption in the Context of Civil Liberties: A Cross-Country Study

Pawel Galinski

doi:10.23762/FSO_VOL12_NO2_5

Published : 2024-06-29

Vol. 12 No. 2 (2024)

Tax Revenue Decentralisation and Corruption in the Context of Civil Liberties: A Cross-Country Study

Pawel Galinski

https://orcid.org/0000-0002-9407-4515

DOI: https://doi.org/10.23762/FSO_VOL12_NO2_5

Abstract

In studies on the functioning of the public sector there are surveys examining the determinants of corruption, including the level of fiscal decentralisation in the light of economic and social development. However, there is a dearth of survey data presenting the impact of the revenue side of this decentralisation in the context of civil liberties. Thus, the aim of the paper is to examine the influence of tax revenue decentralisation and civil liberties on corruption based on the OECD countries, taking into account the impacts of a country’s size, scope of the public sector and public procurements, macroeconomic uncertainty, and interactions between tax revenue decentralisation and civil liberties on the phenomenon under study. The empirical study concerns 38 OECD countries in the period 2012–2022. Therefore, longitudinal data models were estimated, namely the fixed effects model and panel quantile regression with fixed effects using the method of moments. The survey showed that an increase in tax revenue decentralisation causes a decrease in corruption. In addition, civil liberties and their interaction with aforementioned decentralisation may determine corruption; however, this is heterogeneous throughout the distribution of corruption level. In addition, the scope of the public sector and macroeconomic uncertainty stimulate rent-seeking behaviour, which weakens the institutional foundations to counteract corruption. Thus, policymakers should be aware that the growing scope of the public sector, government fragmentation, and the functioning of bottlenecks in the performance of official duties at sub-national level might lead to a decrease in the efficiency of anti-corruption policy or programmes. Based on the findings, it is crucial to ensure price stability to reduce the analysed dysfunction.

Keywords:

corruption, decentralisation, tax revenue decentralisation, civil liberties, government size, public procurements.

Details

References

Statistics

Authors

Download files

pdf

Citation rules

Galinski, P. (2024). Tax Revenue Decentralisation and Corruption in the Context of Civil Liberties: A Cross-Country Study. Forum Scientiae Oeconomia, 12(2), 84–98. https://doi.org/10.23762/FSO_VOL12_NO2_5

Altmetric indicators

Cited by / Share

Licence

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

Afonso, A., Jalles, J. T., & Venâncio, A. (2023). Government Spending and Tax Revenue Decen-tralization and Public Sector Efficiency: Do Natural Disasters Matter? CESifo Working Paper, 10424.

Ahmed, A. D., & Islam, S. M. N. (2010). Financial Liberalization in Developing Countries: Issues, Time Series Analyses and Policy Implication. Springer-Verlag.

Aidt, T. S. (2011). The Causes of Corruption. CESifo DICE Report, 9(2), 15–19.

Ali, A. M., & Hodan, S. I. (2003). Determinants of Economic Corruption: A Cross- Country Comparison. Cato Journal, 22(3), 449–466.

Amin, M., & Soh, Y. C. (2019). Corruption and Country Size: Evidence Using Firm-Level Sur-vey Data. World Bank Policy Research Working Paper, 8864, 1–55.

Arikan, G.G. (2004). Fiscal Decentralization: A Remedy for Corruption? International Tax and Public Finance, 11, 175–195. https://doi.org/10.1023/B:ITAX.0000011399.00053.a1

Åslund, A. (1999). The End of Rent-Seeking, In When is Transition Over?, Brown, A. N. (ed.), When Is Transition Over?, W.E. Upjohn Institute for Employment Research, 51–68.

Atkinson, B. (1998). Inflation. In Applied Economics. Atkinson, B., Livesey, F., Milward, B. (eds). Palgrave. https://doi.org/10.1007/978-1-349-14250-7_22

Bhattacharyya, S., & Hodler, R. (2015). Media freedom and democracy in the fight against cor-ruption. European Journal of Political Economy, 39, 13–24. https://doi.org/10.1016/j.ejpoleco.2015.03.004.

Bojanic A. N., (2018a). The Impact of Fiscal Decentralization on Accountability, Economic Freedom, and Political and Civil Liberties in the Americas. Economies, 6(1), 1–20. https://doi.org/10.3390/economies6010008

Bojanic, A. N. (2018b). The impact of fiscal decentralization on growth, inflation and inequality in the Americas. CEPAL Review, 2018(124), 57–77. https://doi.org/10.18356/31c71be8-en

Bojanic, A. N. (2020). The empirical evidence on the determinants of fiscal decentralization. Revista Finanzas y Política Económica, 12(1), 271–302. https://doi.org/10.14718/revfinanzpolitecon.v12.n1.2020.2656

Bojanic, A. N. (2023). Tying decentralization and income redistribution to fight corruption: Empirical evidence from developed and developing countries. Frontiers in Applied Mathematics and Statistics, 8, 1–24. https://doi.org/10.3389/fams.2022.1099553

Borowiec, A., Lissowski, O., & Ławniczak, J. (2017). Public procurement in the European Union as the demand-side instrument for achieving social and developmental objectives. Zeszyty Nau-kowe Politechniki Poznańskiej. Organizacja i Zarządzanie, 74, 47–62. https://doi.org/10.21008/j.0239-9415.2017.074.03.

Bouis, R. (2019). Banks’ Holdings of Government Securities and Credit to the Private Sector in Emerging Market and Developing Economies. IMF Working Paper, 19/224.

Campbell, N., & Saha, S. (2013). Corruption, democracy and Asia-Pacific countries. Journal of the Asia Pacific Economy, 18(2), 290–303. https://doi.org/10.1080/13547860.2013.778156.

Choudhury, S. (2015). Governmental decentralization and corruption revisited: Accounting for potential endogeneity. Economics Letters, 136, 218–222. https://doi.org/10.1016/j.econlet.2015.09.040

Contreras, S. (2014). An Alternative View to the Cause of Market Failures: A Dynamic Ap-proach. Theoretical Economics Letters, 4, 548–557. http://dx.doi.org/10.4236/tel.2014.47069

de Mello, L., & Barenstein, M. (2001). Fiscal Decentralization and Governance: A Cross-Country Analysis. IMF Working Paper, 71, 1–31.

Dell’Anno, R., & Teobaldelli, D. (2015). Keeping both corruption and the shadow economy in check: the role of decentralization. International Tax and Public Finance, 22, 1–40. https://doi.org/10.1007/s10797-013-9298-4

Dincă, G., Dincă, M.S, Negri, C., & Bărbuță, M. (2021). The Impact of Corruption and Rent-Seeking Behavior upon Economic Wealth in the European Union from a Public Choice Approach. Sustainability, 13, 1–23. https://doi.org/10.3390/su13126870

Fazekas, M., Tóth, I. J., & King, L.P. (2016). An Objective Corruption Risk Index Using Public Procurement Data. European Journal on Criminal Policy and Research, 22, 369–397. https://doi.org/10.1007/s10610-016-9308-z

Fisman, R., & Gatti, R. (2002). Decentralization and corruption: evidence across countries. Journal of Public Economics, 83, 325–345.

Fofana, M. (2022). Natural Resource Rents and Economic Growth Paradox, the Analysis of Re-source Curse and Its Transmission Channels in West Africa: The Role of Public Expenditure Poli-cy. International Journal of Academic Research Economics and Management and Sciences, 11(3), 185–205. http://dx.doi.org/10.6007/IJAREMS/v11-i3/14573

Fuinhas, J. A., Koengkan, M., &‎ Santiago, R. (2021). Physical Capital Development and Energy Transition in Latin America and the Caribbean. Elsevier.

Galiński, P. (2023a). Determinants of the expenditure side of environmental federalism - panel data research on countries in Europe. Economics and Environment, 86(3), 63–88. http://dx.doi.org/10.34659/eis.2023.86.3.601

Galinski, P. (2023b). Determinants of debt for local governments in Europe - panel data re-search. Forum Scientiae Oeconomia, 11(2), 69–86. http://dx.doi.org/10.23762/FSO_VOL11_NO2_3

Gerring, J., & Thacker, S. C. (2005). Do Neoliberal Policies Deter Political Corruption? Interna-tional Organization, 59(1), 233–254.

Ghossein, T., Islam, A. M., & Saliola, F. (2018). Public Procurement and the Private Business Sector: Evidence from Firm-Level Data. World Bank Policy Research Working Paper, 8575. https://doi.org/10.1596/1813-9450-8575

Goel, R. K., & Nelson, M. A. (2011). Government fragmentation versus fiscal decentralization and corruption, Public Choice, 148(3/4), 471–490. https://doi.org/10.1007/s11127-010-9666-x

Gouvea, R., Li, S., & Vora, G. (2019). Corruption and Levels of Economic Development: A Cross-Country Assessment with Special Reference to Africa. Modern Economy, 10, 2063–2084. https://doi.org/10.4236/me.2019.109130

Gruszczyński, M. (2020). Financial Microeconometrics. A Research Methodology in Corporate Finance and Accounting. Springer.

Gründler, K. (2017). A Contribution to the Empirics of Economic Development: The Role of Technology, Inequality, and the State. Würzburg University Press.

Guillamón, M. D., Cifuentes, J., Faura, U., & Benito, B. (2021). Effect of political corruption on municipal tax revenues. Revista de Contabilidad - Spanish Accounting Review, 24(2), 231–240. https://doi.org/10.6018/rcsar.410581.

Gurgur, T., & Shah, A. (2014). Localization and Corruption: Panacea or Pandoras Box? Annals of Economics and Finance, 15(1), 109–136.

Hill. R. C., Griffiths W. E., & Lim, G. C. (2018). Principles of Econometrics, Fifth Edition. John Wiley & Sons.

Karlström, K. (2015). Decentralization, corruption and the role of democracy. QoG Working Paper Series, 14.

Knack, S., & Azfar O. (2003). Trade intensity, country size and corruption. Economics of Gov-ernance, 4, 1–18. https://doi.org/10.1007/s101010200051

Kuhn, T., & Pardos‐Prado, S. (2021). Corruption and support for decentralisation. European Journal of Political Research, 60(3), 625–647. https://doi.org/10.1111/1475-6765.12420

Kwilinski, A. (2023). E-Commerce and Sustainable Development in the European Union: A Comprehensive Analysis of SDG2, SDG12, and SDG13. Forum Scientiae Oeconomia, 11(3), 87–107. https://doi.org/10.23762/FSO_VOL11_NO3_5

Kwilinski, A., Lyulyov, O., Pimonenko, T., Dzwigol, H., Abazov, R., & Pudryk, D. (2022). In-ternational Migration Drivers: Economic, Environmental, Social, and Political Effects. Sustaina-bility, 14, 1–17. https://doi.org/10.3390/su14116413.

Kyriacou, A. P., & Roca-Sagalés, O. (2011). Fiscal and political decentralization and government quality. Environment and Planning C: Government and Policy, 29(2), 204–223. https://doi.org/10.1068/c1016r

Lecuna, A., (2012). Corruption and Size Decentralization. Journal of Applied Economics, 15(1), 139–168. https://doi.org/10.1016/S1514-0326(12)60007-5

Lessmann, C., & Markwardt, G. (2010). One size fits all? decentralization, corruption, and the monitoring of bureaucrats. World Development, 38, 631–646. https://doi.org/10.1016/j.worlddev.2009.11.003

Lewczuk, A. (2021). On the Relationship Between Civil Liberties and Socio-Economic Devel-opment in Post-Socialist States. Gospodarka Narodowa. The Polish Journal of Economics, 306(2), 5–29. https://doi.org/10.33119/GN/134626

Lyulyov, O., Pimonenko, T., Chen, Y., & Kwilinski, A. (2023). Macroeconomic stability of the country: the nexus of institutional and behavioural dimensions. Economics and Sociology, 16(4), 264–288. doi:10.14254/2071-789X.2023/16-4/13

Machado, J. A. F., Santos Silva, J. M. C. (2019). Quantiles via Moments. Journal of Economet-rics, 213(1), 145–173. https://doi.org/10.1016/j.jeconom.2019.04.009

Martell, C. R. (2024). The impact of inflation on local government fiscal health. Journal of Pub-lic Budgeting. Accounting & Financial Management, 36(2), 234–252. https://doi.org/10.1108/JPBAFM-09-2023-0171

Martinez-Vazquez, J., Lago-Peñas, S., & Sacchi, A. (2017). The impact of fiscal decentralization: a survey. Journal of Economic Surveys, 31(4), 1095–1129. https://doi.org/10.1111/joes.12182

Ngugi, J. M. (2010). Making the Link Between Corruption and Human Rights: Promises and Perils, In Proceedings of the Annual Meeting (American Society of International Law), Vol. 104, International Law in a Time of Change, 246-250.

Obeng, K. S. (2021). Fiscal decentralization, democracy and government size: Disentangling the complexities. Journal of International Development, 33(6), 975–1004. https://doi.org/10.1002/jid.3545.

OECD. (2015). OECD Recommendation of the Council On Public Procurement. https://www.oecd.org/gov/public-procurement/recommendation/

OECD. (2021). Subnational governments in OECD countries: Key data (brochure), OECD, Par-is. www.oecd.org/regional/regional-policy

OECD. (2023). Revenue Statistics 2023. OECD Publishing, Paris, https://doi.org/10.1787/2522770x.

OECD. (2024). https://stats.oecd.org/

Oueghlissi, R., & Derbali, A. (2023). Democracy, Corruption and Unemployment: Empirical Evidence from Developing Countries. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-023-01204-0

Our World in Data. (2023). https://ourworldindata.org/grapher/civil-liberties-index-eiu

Ouyang, A. Y., & Li, R. (2021). Fiscal decentralization and the default risk of Chinese local gov-ernment debts. Contemporary Economic Policy, 39(3), 453–667. https://doi.org/10.1111/coep.12531

Pal, S., (2013). Corruption, Networking and Foreign Ownership: Recent Evidence from CEE Countries. IZA Discussion Papers, 7636, 1–45,

Pluskota, A. (2020). The Impact of Corruption on Economic Growth and Innovation in an Economy in Developed European Countries. Annales Universitatis Mariae Curie-Skłodowska, sectio H – Oeconomia, 54(2), 77–87. http://dx.doi.org/10.17951/h.2020.54.2.77-87

Prabowo, H. (2019). Corruption ln Local Autonomy. The International Journal of Social Sci-ences, 73(1), 17–40.

Pritchett, L., & Kaufmann, D. (1998). Civil Liberties, Democracy, and the Performance of Government Projects. Finance & Development, 35(1), 26–29. https://doi.org/10.5089/9781451953220.022

Prud'homme, R. (1995). On the Dangers of Decentralization. The World Bank Research Observ-er, 10(2), 201–220.

Qiao, M., Ding, S., & Liu, Y., (2019), Fiscal Decentralization and Government Size: The Role of Democracy. European Journal of Political Economy, 59(C), 316–330. https://doi.org/10.1016/j.ejpoleco.2019.04.002.

OECD (2015). Consequences of Corruption at the Sector Level and Implications for Economic Growth and Development. OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264230781-en

Rothstein, B., & Teorell J. (2008). What Is Quality of Government? A Theory of Impartial Gov-ernment Institutions. Governance: An International Journal of Policy, Administration, and Insti-tutions, 21(2), 165–190. https://doi.org/10.1111/j.1468-0491.2008.00391.x

Shrestha, K., Martinez‐Vazquez, J., & Hankla C. (2023). Political decentralization and corrup-tion: Exploring the conditional role of parties. Economics & Politics, 35(1), 411–439. https://doi.org/10.1111/ecpo.12222

Spyromitros, E., & Panagiotidis, M. (2022). The impact of corruption on economic growth in developing countries and a comparative analysis of corruption measurement indicators. Cogent Economics & Finance, 10(1), 1–30. https://doi.org/10.1080/23322039.2022.2129368

Starosta de Waldemar, F. (2010). How costly is rent-seeking to diversification: an empirical ap-proach. Proceedings of the German Development Economics Conference, 4, Verein für Socialpoli-tik, Ausschuss für Entwicklungsländer, 1–35.

Svensson, J. (2000). Foreign aid and rent-seeking. Journal of International Economics, 51, 437–461.

Thede, N. (2009). Decentralization, Democracy and Human Rights: A Human Rights‐based Analysis of the Impact of Local Democratic Reforms on Development. Journal of Human Devel-opment and Capabilities, 10(1), 103–123. https://doi.org/10.1080/14649880802675317

Tollison, R. D. (2012). The economic theory of rent seeking. Public Choice, 152, 73–82, DOI 10.1007/s111127-01-1-9852-5.

Transparency International. (2022). Corruption Perceptions Index 2021, Berlin, https://www.transparency.org/en/cpi/2021

Transparency International. (2024). https://www.transparency.org/

Treisman, D. (2000). The causes of corruption: a cross-national study. Journal of Public Eco-nomics, 76(3), 399–457. https://doi.org/10.1016/S0047-2727(99)00092-4

Turkish Statistical Institute. (2023). https://data.tuik.gov.tr/Bulten/Index?p=Government-Accounts-2022-49648&dil=2

Valdovinos, I. A., Szymanski, M., & Grabowska, K. (2019). Revisiting Corruption and Culture – Are there really cultures more prone to corruption? Forum Scientiae Oeconomia, 7(1), 103–120. http://dx.doi.org/10.23762/FSO_VOL7_NO1_7

Valdovinos-Hernandez, I., Szymanski, M., & Grabowska, K. (2019). Mea Culpa – The Role of Religion in Corruption Perception. Forum Scientiae Oeconomia, 7(3), 49–62. https://doi.org/10.23762/FSO_VOL7_NO3_4

Wong, Z. W. V, Chen, C., Law, S. H., & Ismail, N. W. (2022). The effects of rent seeking activi-ties on economic growth in middle-income countries. Bulletin of Monetary Economics and Bank-ing, 25(2), 215–234. https://doi.org/10.21098/bemp.v25i2.1863

World Bank. (2023). https://databank.worldbank.org/

Wursten, J. (2018). Testing for serial correlation in fixed-effects panel models. The Stata Journal, 18(1), 76–100. https://doi.org/10.1177/1536867X1801800106

Yohou, H. D. (2023). Corruption, tax reform and fiscal space in emerging and developing econ-omies. The World Economy, 46, 1082–1118. https://doi.org/10.1111/twec.13385