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Windfall Federal Grants and Local Government Corruption

Fri, May 13, 10:30 to 11:50am, Hilton Orlando Lake Buena Vista, Lake Buena Vista (Orlando), Florida, TBA

Abstract

While federal grants comprise a significant and increasing revenue source for many local governments, regulators express concerns about the effectiveness of the federal government’s grant management systems. This study investigates and finds that windfall increases in federal grants lead to significantly more public corruption charges filed. We next explore whether audit monitoring and press transparency mechanisms help ameliorate this relationship. We find that municipalities’ poor quality internal controls exacerbate the effect of windfalls on corruption, but this effect is attenuated when there are increases in the presence of state fraud auditors. Press transparency weakens the relationship. Additional analysis explores corruption severity, defined as whether corruption results in prison sentences. We find that audit monitoring and press transparency have differential effects on corruption severity. Overall, our study contributes the extant literature by exploring accounting-related aspects of local government political corruption.

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