INTERNATIONAL ANNUAL CONFERENCE ON INTEGRITY - CAII 2018 It s My Money Why Big Government May Be Good Government Dr. Anna Persson Department of Political Science & Quality of Government (QoG) Institute University of Gothenburg, Sweden (Lima, Peru 6 and 7 December 2018)
The current state of corruption prevention If you want to cut corruption, cut government. To root out corruption, boot out big government. Professor Gary Becker, 1992 Nobel Laureate in Economics, titles from Business Weeks columns In the midst of the discussion about the most effective ways to proactively curb corruption, the idea that big government equals bad government is firmly anchored among policy makers and scholars alike. In line with this reasoning which fits neatly with the policy prescriptions of the Washington Consensus, launched by major international organizations such as the IMF and the World Bank in the early 1990s the scaling down of governments has typically been a top priority in the fight against corruption. A proactive state = A small state Deregulation Privatization Removal from government the power to collect taxes and provide goods and services
Why small government should be good government Corruption = Monopoly + Discretion Accountability Robert Klitgaard The idea that bigger governments are more prone to corruption than smaller ones follows the logic of the public choice school (Rose-Ackerman 1978; Banfield 1975; Tanzi 2000). Within this framework, corruption is conceptualized as a principal-agent problem, within the framework of which the state is assumed to be a grabbing hand. The state as a grabbing hand = A state controlled by politicians who do not maximize social welfare and instead pursue their own selfish objectives (Shleifer & Vishny 1998). Since monopoly and discretion are more prevalent when governments are big, such states should be expected to provide more opportunities for corruption and thus also be comparatively more corrupt.
Revisiting the state as a grabbing hand 89 Empirical indicators do not support the argument that smaller governments are less corrupt. On the contrary, empirical indicators point in the opposite direction: 52 BIG GOVERNMENT = GOOD GOVERNMENT 38 CPI
The empirical relationship between government size and corruption
Why Big Government is Good Government Corruption = Monopoly + Discretion Accountability Robert Klitgaard How can we understand that, despite the theoretical appeal and coherence of the argument that big government should be expected to be bad government, empirical indicators point in the reverse direction? What is it that we forsake when we downsize government? Our research: When we downsize government, we forsake the likeliness that citizens will hold corrupt officials accountable i.e. the third component of Klitgaard s equation (Persson & Rothstein 2015). Government size does not only affect the number of opportunities public officials have to engage in corrupt activities, but it also affects the incentives to be corrupt once the opportunity arises. While the opportunities to engage in corrupt activities presumably increase with the size of government, the incentives to do so are instead likely to decrease. This is because, in the absence of (direct) taxation, citizens do not feel much ownership of the state and state resources and will, thus, not be likely to report and punish corrupt behavior.
How big government drives accountability The ownership effect of (direct) taxation The graduated tax has been abolished so people don t see the government as their property. The other taxes you pay are indirect, like on commodities. You don t feel it so you don t think you are contributing. So this is making citizens a little divorced from the government. People don t feel connected because there is limited taxation here. If they see corruption, they will tell you that money is government money, it is not ours. In the end, there must be a form of responsibility that is created between what you pay with your taxes and what you demand from government. If more people were paying taxes here and it was biting on them, they would demand something in return.
Summary and conclusions The broader public seems to agree that politicians who do not know how to draw a strict line between their own money and money belonging to the society at large, and who defend such misconduct, contribute significantly to an increase in the hostility directed towards politicians. This harms the democratic system. Svenska Dagbladet, November 3 rd, 1995. When government is downsized, the likeliness that citizens will hold corrupt officials accountable is significantly reduced, with devastating consequences for the quality of government. This is because (direct) taxation instills a sense of ownership of the state and state resources among the citizens that makes them likely to report and punish corrupt behavior.
Policy implications The downsizing of governments should be conducted with care, with the negative implications for the quality of government in mind. (Direct) taxation is key to accountability and the establishment of a productive social contract between the citizens and the state. Challenges ahead for the proactive state in the fight against corruption involve the expansion of the (direct) tax base and burden even in countries plagued by widespread corruption, an administratively and societally complicated and demanding task!
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