Corruption & Electoral Competition

Abstract: We ask whether a “hyper-competitive election” (i.e. winning against competitors by very small margin of votes) can be a credible threat on incumbent politicians to lessen the extent of their corrupt activities. A politician may extract funds from public finances to offset or earn more than the incurred costs in election at the expense of less public goods supplied. We hypothesize that the decision to extract money from public finances depends on how the politician weighs the future consequences of getting caught, the credibility of these threat/consequence, the sensitivity of the voters to the supply of public goods, or the viability of an alternative candidate. We created measures of corruption using the audit reports from the Commission on Audit (independent constitutional commission responsible in auditing government finances). We used the Regression Discontinuity Design (RDD) and Difference-in-Difference (DID) as identifying strategies to pin down the causal effect of election competition on corruption. Using the election year as the cut-off, we compared corruption measures between re-electionists who won by very small margin (i.e. under “hyper-competitive” election) versus those who won by large margin.