Corruption, State
Capture, and Public
Financial Policy in
Central and Eastern
Europe Steven Gawthorpe
EXECUTIVE SUMMARYThis project seeks to critically analyze the
following issues in Central and Eastern Europe:
How State Capture Influences Public Financial Policy Via Public Procurement
How Rent-Seeking Activities Pursue Capital Intensive Areas Over Labor Intensive Areas of Public Spending
How Decreases in Public Spending may Foster Increases in Corruption Related Activity
OUTLINE
REGION: CENTRAL AND EASTERN EUROPE
GENERAL FORMULA
CorruptionAccountabili
ty
Monopoly
Discretion
STATE CAPTURE
“In a state where corruption abounds, laws must be very
numerous” Publius Cornelius Tacitus
• State capture is the manipulation of laws, rules, and regulations of public policy with the intention to serve private interests
HOW INEFFECTIVE POLICY FUELS RENT-SEEKING
• Instructive Example: How the All Pay Auction Concept Instigates Rent-Seeking Behavior
The Consequences? Misallocation of Social Resources Rewarded Incentives for Illicit Behavior Asymmetric Information Major Barriers to Market Entry
ISSUE: HYPOTHESIS Areas of corruption in public
procurement that have yet to be fully explored will emphasize the following:
Decreases in expenditure can increase corruption rather than decrease
Corrupt activity is more prevalent with capital intensive areas of procurement than labor intensive activities
State capture influences public procurement policy under the umbrella of public finance
METHODOLOGY: CORRUPTION DIAGNOSTICS
VALUE CHAIN METHODOLOGY
The value chain basically lays out the sequence of activities that a sector would have to undertake to deliver a particular output
By assessing the vulnerabilities in the value chain of the public procurement process one can determine the exposure to corruption related activities
PROCUREMENT CHAIN EXAMPLE
DIAGNOSTIC QUESTIONNAIRE
Is there an independent audit of the state budget?
Are there clear rules, laws, and processes for government procurement?
Are revenue forecasts realistic?
Are there internal AND external audits?
ECONOMETRICS
An Analysis of Variance (ANOVA) multiple linear regression will regress: State capture indicators Government effectiveness indicators The results from the diagnostic questionnaires
• The Goal is Determine:• Correlation• Statistical Significance• Causality
CONCLUSION: FOOD FOR THOUGHT
The nature of corruption is secretive and can never be analyzed with absolute precision
Corruption can be described much like a black hole: you cannot directly see it but you can see its effects
Through diagnostic measures this project’s goal is to pinpoint where corruption is most likely to occur and analyze the potential problem areas and contribute alternative actionable indicators to better serve anti-corruption policies
QUESTIONS? Campos, E., & Pradham, S. (2007). The Many Faces of
Corruption: Tracking Vulnerabilities at the Sector Level. Washington D.C.: The World Bank.
Rose-Ackerman, S. (1999). Corruption and Government: Causes, Consequences, and Reform. New York, NY: Cambridge University Press.
Hellman, J., & Kaufmann, D. (2002, December). The Inequality of Influence. The World Bank. Retrieved from http://www.worldbank.org/wbi/governance/pdf/inequality_influence.pdf
References:
Top Related