Nikolova, Elena and Nikolay Marinov. 2017 "Do Public Fund Windfalls Increase Corruption? Evidence From a Natural Disaster"
We show that unexpected financial windfalls increase corruption in local government. Our analysis uses a new data set on flood-related transfers, and the associated spending infringements, which the Bulgarian central government distributed to municipalities following torrential rains in 2004 and 2005. Using information from the publicly available audit reports, we are able to build a unique objective index of corruption. We also exploit the quasi-random nature of the rainfall shock (conditional on controls for ground flood risk) to isolate exogenous variation in the amount of funds received by each municipality. Our results imply that a 10 % increase in the per capita amount of disbursed funds leads to a 9.8 % increase in corruption. We also present suggestive evidence that more corrupt mayors anticipated punishment by voters and dropped out of the next election race. Our results highlight the governance pitfalls of non-tax transfers, such as disaster relief or assistance from international organizations, even in moderately strong democracies.
A link to the working paper is available from SSRN here.
A link to the most recent submission, including the online appendix, can be found here.
An illustrated presentation of this research, delivered at UCL in 2015, can be found here.
English-language supporting materials for the publication include:
- Chronology of the floods
- The Bulgarian National Audit Office Summary of the audits and infractions
- Table with the different infractions uncovered by the The Bulgarian National Audit Office
Additional materials such as watch dog reports and media coverage, here (in Bulgarian)
Благодарим на Юмер Коджаюмер за превода, както и на Професор Ружа Смилова за съдействието.