Do Government Audits Reduce Corruption? Estimating the Impacts of Exposing Corrupt Politicians

Produced by: 
PUC Rio
Available from: 
July 2016
Paper author(s): 
Eric Avis
Claudio Ferrraz
Frederico Finan
Topic: 
Conflict, Crime and Violence
Institutions and Development
Politics and Economy
Year: 
2016

Political corruption is considered a major impediment to economic development, and yet it remains pervasive throughout the world. This paper examines the extent to which government audits of public resources can reduce corruption by enhancing political and judiciary accountability. We do so in the context of Brazil’s anti-corruption program, which randomly audits municipalities for their use of federal funds. We find that being audited in the past reduces future corruption by 8 percent, while also increasing the likelihood of experiencing a subsequent legal action by 20 percent. We interpret these reduced-form findings through a political agency model, which we structurally estimate. Based on our estimated model, the reduction in corruption comes mostly from the audits increasing the perceived threat of the non-electoral costs of engaging in corruption.

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