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Corruption, State Capture, and Public Financial Policy in Central and Eastern Europe

Corruption, State Capture, and Public Financial Policy in Central and Eastern Europe . Steven Gawthorpe. Executive Summary. This project seeks to critically analyze the following issues in Central and Eastern Europe:

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Corruption, State Capture, and Public Financial Policy in Central and Eastern Europe

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  1. Corruption, State Capture, and Public Financial Policy in Central and Eastern Europe Steven Gawthorpe

  2. Executive Summary This project seeks to critically analyze the following issues in Central and Eastern Europe: • How State Capture Influences Public Financial Policy Via Public Procurement • How Rent-Seeking Activities Pursue Capital Intensive Areas Over Labor Intensive Areas of Public Spending • How Decreases in Public Spending may Foster Increases in Corruption Related Activity

  3. Outline

  4. Region: Central and Eastern Europe

  5. General formula Monopoly Discretion Corruption Accountability

  6. State Capture “In a state where corruption abounds, laws must be very numerous” Publius Cornelius Tacitus • State capture is the manipulation of laws, rules, and regulations of public policy with the intention to serve private interests

  7. how Ineffective policy Fuels rent-seeking • Instructive Example: How the All Pay Auction Concept Instigates Rent-Seeking Behavior • The Consequences? • Misallocation of Social Resources • Rewarded Incentives for Illicit Behavior • Asymmetric Information • Major Barriers to Market Entry

  8. Issue: Hypothesis • Areas of corruption in public procurement that have yet to be fully explored will emphasize the following: • Decreases in expenditure canincrease corruption rather than decrease • Corrupt activity is more prevalent with capital intensive areas of procurement than labor intensive activities • State capture influences public procurement policy under the umbrella of public finance

  9. Methodology: Corruption Diagnostics

  10. Value Chain Methodology • The value chain basically lays out the sequence of activities that a sector would have to undertake to deliver a particular output • By assessing the vulnerabilities in the value chain of the public procurement process one can determine the exposure to corruption related activities

  11. Procurement Chain Example

  12. Diagnostic Questionnaire

  13. econometrics • An Analysis of Variance (ANOVA) multiple linear regression will regress: • State capture indicators • Government effectiveness indicators • The results from the diagnostic questionnaires • The Goal is Determine: • Correlation • Statistical Significance • Causality

  14. Conclusion: Food For Thought • The nature of corruption is secretive and can never be analyzed with absolute precision • Corruption can be described much like a black hole: you cannot directly see it but you can see its effects • Through diagnostic measures this project’s goal is to pinpoint where corruption is most likely to occur and analyze the potential problem areas and contribute alternative actionable indicators to better serve anti-corruption policies

  15. Questions? References: • Campos, E., & Pradham, S. (2007). The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level. Washington D.C.: The World Bank. • Rose-Ackerman, S. (1999). Corruption and Government: Causes, Consequences, and Reform. New York, NY: Cambridge University Press. • Hellman, J., & Kaufmann, D. (2002, December). The Inequality of Influence. The World Bank. Retrieved from http://www.worldbank.org/wbi/governance/pdf/inequality_influence.pdf

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