An Analysis of the Determinants of Corruption: Evidence from the Italian Regions

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An Analysis of the Determinants of Corruption: Evidence from the Italian Regions ISSN: 2038-7296 POLIS Working Papers [Online] Dipartimento di Politiche Pubbliche e Scelte Collettive – POLIS Department of Public Policy and Public Choice – POLIS Working paper n. 171 September 2010 An analysis of the determinants of corruption: Evidence from the Italian regions Nadia Fiorino and Emma Galli UNIVERSITA’ DEL PIEMONTE ORIENTALE “Amedeo Avogadro” ALESSANDRIA Periodico mensile on-line "POLIS Working Papers" - Iscrizione n.591 del 12/05/2006 - Tribunale di Alessandria An Analysis of the Determinants of Corruption: Evidence from the Italian Regions Nadia Fiorino∗ Emma Galli Università degli Studi L’Aquila and Università degli Studi di Roma “La CREI Sapienza” and CREI Abstract This paper investigates the causes of corruption in the Italian regions for the period 1980 to 2002 by selecting a number of hypotheses assessed in the literature. Corruption turns out to be driven by the level of per capita income and of education. While, as expected, income is negatively related with corruption, education is not; its positive impact on corruption can be explained as if corruption in Italy was typically a ‘white collars’ phenomenon during the 1980s and 1990s. Moreover the size of public investments in both the economic and politico- institutional dimensions seems to be a crucial factor in the explanation of the phenomenon. Keywords: Corruption; Determinants; Institutions; Italian regions JEL classification: O1; H0 1. Introduction Corresponding Author, Nadia Fiorino, Dipartimento di Sistemi e Istituzioni per l’Economia, Università degli Studi dell’Aquila, Via Giovanni Falcone, 25 - 67100 Coppito-L’Aquila, ITALY. E-mail: [email protected]. We would like to thank Luisanna Onnis, Fabio Padovano, Simona Scabrosetti, and the participants to the 2008 Società Italiana di Economia Pubblica Conference and to the 2009 European Public Choice Society Meeting. The usual caveat applies. The literature on the historical, cultural, economic and political determinants of corruption is quite developed: countries characterized by common law systems that embody greater protection of property against the state (La Porta et al., 1999), less hierarchical religions like Protestantism (La Porta et al., 1997), higher levels of income and education (Lipset, 1960), less government expenditures and regulations (Glaeser and Shleifer, 2003), lower diversity along ethnic and income lines (Mauro, 1995; Alesina et al., 2002) and higher degrees of civicness of the population (Putnam, 1993) are expected to be less corrupt. Mixed predictions have been provided by the literature about the impact on corruption of federalism (Weingast, 1995; Breton, 1996; Tanzi, 1995) and of electoral systems (Persson and Tabellini, 1999; Lijphart, 1999). The empirical research however faces major difficulties in measuring corruption rates. Recently economists and political scientists have used indexes of ‘perceived’ corruption constructed by business risk analysts and polling organizations based on survey responses of businessmen and local residents. Among others, Mauro (1995), La Porta et al. (1997, 1999), Ades and Di Tella (1999) and Persson et al. (2003) used those indexes to investigate the causes of corruption in cross-national analyses. The Corruption Perceptions Index produced by Transparency International places Italy in the same group of several Eastern European, Asian and South-American countries with a score of about 5.2 calculated in a range between 10 (highly clean) and 0 (highly corrupt). Indeed since its unification in 1861, the Italian political system has been characterized by a strong interaction between politicians, bureaucrats and citizens aimed to reap high benefits through special laws or through political appointments (the so-called clientelismo). In the 1980s yet the increasing practice of bribing politicians and bureaucrats associated with the ongoing fiscal crisis of the public finances began to modify the general attitude towards corruption and to spread greater intolerance towards it in the public opinion. Del Monte and Papagni (2007) show that corruption crimes increased steadily between the mid-1970s and the first half of the 1990s, especially in the Southern regions, and slightly decreased after 1993 as a consequence of the so- called Mani Pulite (Clean Hands) campaign undertaken by the judiciary system. However, the distribution of corruption crimes is not homogeneous across the territorial areas of the country. Our paper is an attempt to take account of this differentiation by selecting a number of hypotheses assessed in the literature about the causes of corruption and applying them to the Italian regions. In order to comparatively test the explanatory power of these hypotheses we built a set of measures of the level of corruption and of the economic and politico-institutional determinants on regional basis for the period 1980 to 2002. The paper is organized as follows: in Section 2 we present the leading theories of what causes corruption. The empirical framework is analyzed in Section 3 where variables and data are described. Section 4 discusses the results. Section 5 offers some concluding remarks. 2. The determinants of corruption: a review of the literature It is difficult to fully capture the economic and social significance of corruption as well as its causes and consequences. The economic literature tries to investigate why public officials misuse their office for private gain more frequently in some countries than in others by identifying economic as well as social, cultural and political variables that correlate with the incidence of corruption. If we define corruption as a crime made by public officials for personal gain (as in Rose-Ackerman, 1975) the economic theory of corruption follows closely the economic theory of crime (Becker, 1968). The potential criminal, in this case a public official, weighs the benefits of crime against its costs. The various economic theories on the determinants of corruption are thus driven by this cost-benefit calculus of the potential criminal. National or local characteristics, however, will influence the level of corruption as they alter the benefits and costs of crime. The most relevant cost come from the risk of being caught and punished that depends in turn on the effectiveness of the country’s legal system and on the degree of protection it provides to private individuals harmed by corrupt acts of public officials1. The risk of being caught may be higher in more democratic systems where competitors for office have an incentive to disclose and publicize the incumbent’s misuse of office during the 1 On the impact of different legal systems – common law versus civil law – on corruption see, among others, La Porta et al., 1999 elections. This hypothesis is based on an extensive literature originated by Lipset (1960) that considers political attention a luxury good, education a way to lead individuals towards having a higher value of staying politically involved, civic engagement a channel towards closer monitoring (Putnam, 1993; Glaeser et al., 2004). Therefore, voters with higher income and education are expected to be both more willing and capable to monitor public employees and to take action when the latter violate the law. The literature considers also that the effectiveness of a legal system is rooted not only in the formulations of the laws but also in the ‘legal culture’, that is the expectations and practices that inform the way they are enforced. Different conceptions of the social role of law may imply dissimilar perceptions of the gravity of corruption. Besides losing their jobs, corrupt officials face a social stigma that highly depends on the prevailing moral norms and cultural expectations. In other words, the more dissonance occurs between the law and those norms, the lower legitimacy the legal system will tend to have and the higher will be then the degree of corruption (Treisman, 2000). The benefits of corruption come from public agents being able to allocate resources to private individuals, including the right to bypass certain regulations. Then the official uses his power to generate some gains for the private individual beyond those he would receive without state interventions. State measures such as regulations, taxation, public economic activities may be used to give the private agent advantages wit respect to others in the market and in return the private agent pays the official part of the rent. Therefore, the larger the public sector and the greater the number of regulations of the economy, the greater will be the opportunities for helping private actors either to benefit or to evade these regulations, increasing the possibilities for corrupt practices (Tanzi, 1994; Glaeser and Shleifer, 2003; Adsera et al., 2003). Countries characterized by more regulations will experience higher levels of corruption as public officials and private individuals will have more resources to steal and more rules to exploit. Another set of theories on the determinants of corruption has focused on the effect of ethnic fragmentation on corruption and wasteful redistribution (Mauro, 1995; Fearon and Laitin, 1996; Alesina et al., 2002). If an area is worn out by ethnic divisions and leaders tend to allocate resources towards groups of their own ethnicity, then members of one ethnic group might continue to support a leader of their own group, even if he is known to be corrupt. Furthermore, other forms of division, such as income inequality, may also reduce voters’ desire to oppose corruption
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