Public Support and the European Union Centralised Compliance Monitoring System

Arthur Dyevre (KU Leuven)
Yu-Cheong Yeung (KU Leuven)

Abstract : We investigate the effect of public opinion on the European Union centralised compliance monitoring system. We argue that because the authority and effectiveness of its enforcement actions are affected by public support, the European Commission has incentives to adjust its enforcement decisions to the public mood. Whereas high public support gives the Commission greater leverage to discipline Member States, low support acts a constraint on harsher forms of enforcement action. To address the endogenous character of enforcement and public support, we use unemployment rate and health care cuts interacted with Eurozone bailouts as instrumental variables to estimate the effect of public support on enforcement actions. Consistent with our theoretical predictions, we find the strongest evidence for the influence of public support on enforcement at the litigation stage when the Commission decides whether to take member states to court.

Under Pressure? Performance Evaluation of Police Officers As an Incentive to Cheat: Evidence from Drug Crimes in Russia

Ekaterina Travova (CERGE-EI)

Abstract : This paper provides an empirical analysis of manipulations of seized drug amounts by police officers, based on a unique dataset that contains full information on drug crimes in Russia reported during 2013-2014. First, using a bunching estimator, I document a significant excess mass of heroin cases above the punishment cliff. The mass is 6.325 times greater than the average number of cases in a counterfactual scenario without manipulation. Next, I employ an event study approach to investigate the incentives for police officers to manipulate and find that the motivation arises from the officers' performance evaluation system. One of the main indicators applied for evaluation is the number of serious and most serious drug crimes, which can be easily increased by moving offenders from below to above the threshold. Exploring the dynamics of this indicator during a calendar year, I document that it increases by 23% in the month when a police station is close to reaching the previous year's level of performance, current target. Comparing the performance evaluation systems of two separate drug control agencies, I find further evidence of this response to performance requirements. Finally, applying a novel bunching technique, I determine that police officers are more likely to manipulate the drug amounts seized from repeat offenders. The overall effect of manipulation on the sentence length of drug users is an additional year of incarceration, which is a 67% increase, compared to the average sentence length without manipulation.

Monitoring and Local Governance: Evidence from Italy

Silvia Vannutelli (Boston University )

Abstract : Monitoring by external auditors is a ubiquitous practice in complex organizations. Frequently, the audited entity appoints the external auditor. While locally-appointed auditors might have better local knowledge, leaving discretion in the hands of the audited party might impair monitoring quality. In this paper, I exploit a unique setting which allows me to evaluate this trade-off in the context of auditing of municipal budgets of local governments. In 2011, Italy introduced a reform that removed the discretion of the appointment of municipal auditors from mayors and introduced a random-assignment system. The objective of the reform was to strengthen monitoring and ensure fiscal sustainability of municipal budgets. I study the consequences of increased monitoring on public finance outcomes of local governments. My identification exploits the staggered introduction of the reform across municipalities in an event-study setting. I obtain three main findings. First, the reform greatly increased compliance with fiscal rules: treated municipalities increase their surpluses by 20% and their debt repayments by 2%. Second, improvements largely come from municipalities in which the mayor was term-limited and from those local governments that were running deficits before the reform. Third, the improvement in compliance with fiscal rules comes at a cost: treated municipalities significantly cut investment expenditures by over 7% and increase local taxes by 8%.