Mayors Reduce Spending in Response to Increased Monitoring

• In Event: Bureaucracies and Corruption in the Global South

Abstract

Research on the effect of anti-corruption interventions suggests that increased monitoring reduces inefficiencies in public spending and improves the delivery of goods and services. Where does this incentive come from? Current explanations highlight the role of bottom-up mechanisms (e.g. police crackdowns, legal investigation) and cast doubt on top-down incentives (e.g. electoral sanctions, reduced tax collection). However, recent work on the electoral consequences of corruption suggests an alternative route for bottom-up incentives: Voters rarely have the chance to punish corruption because politicians adjust their behavior in office in reaction to increased monitoring. This paper uses data from an anti-corruption program that randomly selects municipalities for auditing in Brazil to test this implication. I find that audits lead to a reduction in public spending and an increase in the concentration of spending across budget categories in a pattern that reveals incumbents' attempt to preserve their reelection chances. The effect is more pronounced among mayors eligible for reelection and when audits happen close to an election year. Moreover, I show that the reduction in spending occurs primarily in highly visible budget categories.

Author

• Gustavo Diaz, McMaster University