Unintended Consequences: EU Funds, Political Corruption, and Power Consolidation

• In Event: Geography of Discontent

Abstract

Do fiscal funds allocated by the European Union (EU) to member states deliver an electoral advantage to corrupt and populist incumbent parties? The European Union spends nearly 94 percent of its yearly budget on fiscal allocations to member states. The funds—which in the case of the less-developed EU countries comprise as much as 80 percent of their public investment—aim to boost economic growth, promote regional and social development, and narrow the wealth gap among the Union’s developed and developing post-socialist states. The underlying expectation is that by stimulating socioeconomic outcomes, these fiscal allocations will advance recipient states’ institutional effectiveness, reinforce EU values, and ultimately enhance democratic performance across the region. In practice, however, policy-makers and constituents have increasingly linked the EU’s fiscal transfers to political corruption and institutional malperformance in target states—practices that, contrary to the funds’ intent, undermine democratic effectiveness and jeopardize the EU’s democratic consolidation. Thus, while in several EU states, including Bulgaria, Poland, and Romania, voters have participated in organized protests against political corruption, domestic policy-makers and opposition forces have pointed to the EU transfers as an underlying mechanism that unwittingly supports political corruption in their countries.

These events raise the important question of how funds allocated by the EU to member states exhibiting varying degrees of political corruption shape domestic politics and incumbent parties’ governing outcomes. Despite concerns about the linkage between rising political corruption and inefficient use of EU transfers by member states’ authorities, the impact of EU funds on political corruption has to date received surprisingly minimal empirical attention. Even less empirical consideration has been given to the question of how allocations to corrupt EU states affect domestic party politics, populist tendencies, and the political longevity of recipient states’ governing parties.

In this paper, I analyze whether fiscal transfers allocated by the European Union to member states deliver an electoral advantage to recipient countries’ governing parties, conditional on the degree of executive corruption across recipient states. I develop a novel theory of “Corruption Compensation” which argues that greater allocations to the EU’s corrupt member states increase the likelihood of misallocation by recipient states’ governing parties. Given their engagement in political corruption, incumbents are more likely to expect electoral backlash, particularly in the presence of robust opposition. Under these conditions, governing parties have incentives to engage in Corruption Compensation strategies by diverting EU fiscal flows toward strengthening their political networks and implementing programs and policies that appease their electoral bases – strategies that jeopardize recipient states’ economic development and public trust in democratic institutions. Consequently, rather than promoting balanced economic development and political coherence within the EU, greater funds to corrupt EU states boost corrupt and populist governing parties’ competitive advantage over the opposition.

Examining a newly assembled data set on fiscal funds allocated by the European Union to member states between 2000 and 2015, I empirically assess my theory that in states with higher degrees of executive corruption, incumbent parties display a larger electoral boost from external fiscal funds than their counterparts in less corrupt states. The empirical results support my theoretical expectations, suggesting that corrupt and populist governments divert EU fiscal funds toward practices and policies that increase their electoral payoffs. To my knowledge this study is the first to take into account target states’ political corruption to document how EU transfers impact internal electoral politics in recipient countries.

Author

• Albana Shehaj, Harvard University