Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 938: Public Sector Size and Corruption: Evidence from 290 Swedish Municipalities

Andreas Bergh (), Günther Fink and Richard Öhrvall
Additional contact information
Andreas Bergh: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Günther Fink: Harvard School of Public Health
Richard Öhrvall: Linnaeus University

Abstract: In this paper, we use data from a corruption survey conducted among top politicians and high level civil servants in 290 Swedish municipalities in 2007 to investigate the effects of government size on corruption. We construct several measures of corruption based on the survey, and combine these corruption measures with detailed administrative municipality level data to estimate the effect of local government resources on corruption. In cross-sectional analysis, we find a robust and negative association between total public expenditure and corruption. When we use lagged population growth rates and age structure as instruments for expenditure in 2-stage-least-squares regressions, the point estimates remain negative, but are no longer significant. In contrast with standard political economy models, where a bigger public sector is typically assumed to cause problems with corruption and public office abuse, our results suggest that corruption pressures may be particularly high when government resources are limited.

Keywords: Corruption; Government size; Local politi

JEL-codes: D73; H72

31 pages, November 12, 2012

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