Do Fiscal Decentralization and Government Fragmentation Affect Corruption In Different Ways? Evidence from a Panel Data Analysis.

Are countries characterized by more decentralized fiscal and spending powers less corrupt? Or is a higher degree of government fragmentation a more effective way to deter corruption? Is there any evidence that these alternative ways to enhance government accountability reinforce each other? This paper tries to answer these questions by using several indicators of government fragmentation and fiscal decentralization for a panel of 23 countries in the 1995-2007 time interval. Taken separately, while various measures of government fragmentation do not seem to affect corruption in any significant way, fiscal decentralization measured as fiscal and spending autonomy does seem to reduce corruption. This latter effect is reinforced if fiscal decentralization is combined with a high degree of government fragmentation at the local level. The results appear robust to different specifications of the empirical model.