Electoral accountability and corruption: evidence from the audits of local governments

Political institutions can affect corruption. The researcher uses audit reports from an anti-corruption programme in Brazil to construct new measures of political corruption in local governments and test whether electoral accountability affects the corruption practices of incumbent politicians. It is suggested that Mayors with re-election incentives misappropriate 27 percent fewer resources than mayors without re-election incentives. These effects are more pronounced among municipalities with less access to information and where the likelihood of judicial punishment is lower.

The paper provides the following findings:

• There is more corruption in municipalities governed by second-term mayors even when compared to first-term mayors that have been in power in a previous mandate
• Effects of re-election incentives on corruption depend on local characteristics.
• Second term mayors facing term-limits who later pursue further a political career behave as first-term mayors and engage in less corrupt activities.
• A corrupt mayor who faces the possibility of re-election can exploit this information asymmetry to increase re-election chances by refraining from rent-seeking and behaving as a non-corrupt mayor.
• While non-corrupt incumbents will still behave in accordance with voters’ objectives, corrupt politicians face a trade-off. A corrupt politician can extract rents in period 1 and forgo re-election, or alternatively behave as a non-corrupt politician to guarantee re-election and reap the benefits of a second term.
• Mayors who can be held accountable at the polls will engage in less corruption and mayors with re-election incentives refrain from rent extraction in order to increase their likelihood of re-election.

This paper provides the following conclusions:

• The reduction in corruption practices induced by electoral accountability is not only statistical significant, but economically important. However, the difference in corruption between first and second-term mayors is remarkably robust to various specifications and alternative interpretations.
• Electoral rules that enhance political accountability play a crucial role in constraining politician’s corrupt behaviour even in an institutional context where corruption is pervasive and elites dominate local politics.
• Despite this positive effect of re-election incentives on constraining corruption, further research is needed in order to assess whether electoral accountability affects other aspects of governance and ultimately improves voters’ welfare.