Fiscal decentralisation and the attenuating effects of inter‐governmental transfers and economic development on corruption in China

Abstract

The consensus in the literature is that fiscal decentralisation is a means to reduce corruption. For China, the attenuating effects of fiscal decentralisation are often enhanced by other factors. This paper argues that prior findings serve to facilitate the design of anti‐corruption measures but they do not address why individuals may engage in corruption. This is especially as individual evidence suggests that engaging in corruption is against professional ethos in China. This paper suggests that intergovernmental transfers and the relative level of economic development of where a public servant is serving influence the decision of whether to engage in corruption. Specifically, intergovernmental transfers and a higher level of local economic development directly affect the resources that a local administration has. In turn, this affects the extent to which one may realise their motivations for a career in the public sector. Empirical estimates for 1998–2013 serve to support the hypothesis. Fiscal decentralisation mitigates the prevalence of corruption in China in conjunction with other complimentary factors. But engaging in corruption is inconsistent with motivations for a public sector career which include engaging in work for society's greater benefit. Corruption may emerge because public servants feel that they may be unable to achieve their aims for joining the public sector because of local resource constraints. Empirical findings suggest that increased resources to local administrations from intergovernmental transfers and economic development may discourage public servants from deviating from their stated career motivations, that is, engaging in corruption.