Corruption and economic growth: Greasing the wheels or sanding the gears? Evidence from Italian regions

Abstract

This paper examines how corruption shapes regional growth in Italy and conditions the growth effect of public spending. Using disaggregated judicial data for twenty regions (1991–2015) that distinguish two contractual forms of corruption—active (coercive payments imposed by officials) and passive (collusive bribes initiated by firms)—we estimate dynamic panel models to identify direct and spending-interaction effects. Three results emerge. First, active corruption can display a short-run “grease” association with growth in highly bureaucratic settings, but the effect is non-linear and quickly dissipates at higher levels. Second, active corruption sands the wheels by weakening the growth-promoting role of public expenditure, whereas the passive form shows no comparable interaction. Third, this erosion is strongest in weaker institutional environments, particularly in Southern regions. Policy should therefore shield procurement and frontline services through transparency, risk-based integrity checks, and digital traceability, and target oversight and enforcement where vulnerabilities are greatest. Aligning anti-corruption with regional development priorities is essential to preserve spending multipliers and sustain more balanced growth.