Does corruption really matter for the structure of public expenditures?

Abstract

Corruption significantly distorts the allocation of public expenditures, yet systematic evidence on its effects on current and capital expenditures is limited. This study analyzes panel data from 45 Sub-Saharan African (SSA) countries from 1996 to 2022. Using fixed effects and instrumental variables models, we find that corruption reduces capital expenditures while increasing current expenditures. Additionally, mediation analysis reveals that income inequality, conflict, and the rule of law are key channels through which corruption impacts public expenditure structures in SSA. We recommend enhancing accountability and transparency in public expenditures and prioritizing good governance.