Corruption and the size of government: causality tests for OECD and Latin American countries

Abstract

The purpose of this article is to examine the causality between government size and corruption, and to verify if there is a different pattern of causality between developed Organization for Economic Co-operation and Development (OECD) countries (excluding Mexico) and developing countries (Latin American countries) during the period 1996 to 2003. Applying Granger and Huang's (1997) methodology we find evidence that size of government Granger causes corruption in both samples. Since a larger government involvement in private markets today will be followed in future by a higher level of corruption a policy advice would be to enhance governance. The promotion of good governance helps to combat corruption given that it complements efforts to reduce corruption more directly, and it is strongly recommended by the International Monetary Fund, other multilateral institutions, and all worried with the negative impacts of corruption on economic activity.

Causes and Effects of Corruption: What Has Past Decade's Empirical Research Taught Us? A Survey

“…Similarly, another empirical study that used data sets from 100 countries over the time periods 1995 – 1997, 1998 – 2000, and 2001 – 2003 found that larger governments in fact led to lower levels of corruption (Goel and Nelson, ). Another study that uses data for both OECD and developing countries over the period 1996 – 2003 however found there to be a strong causality between large governments and corruption (Arvate et al ., ). In an attempt to explain these ambiguous results, a later study used annual data from 82 countries between 1995 and 1998 while controlling for the levels of democracy.…”

Behavioral Determinants of Corruption. A Cross-Country Survey

“…At the opposite pole, there are individualistic religions such as Protestantism which promote economic freedom with a less involvement of government in the private sector. Therefore, these categories of religions are less tolerant with corruption acts than in those where hierarchical religions are dominant(Arvate et al, 2009; Kilkon and Seong-Gin, 2014). A second category of studies investigates the relationship between religion and corruption starting from the level of religiosity.…”

Control of Corruption and Luxury Goods Consumption

“…A large body of literature favours the view that increasing government size provides more opportunities for political rent‐seeking activities, therefore, leading bureaucrats to corruption (Kotera et al ). For example, Arvate et al () show that government size Granger cause corruption in a sample of OECD and Latin American countries. Bernauer and Koubi () also demonstrate that higher government spending as a percentage of GDP goes hand‐in‐hand with an inferior quality of public good offering, in their case, air quality.…”