Brazilian electoral system: what are the incentives for corruption?

Responsible researcher: Pedro Jorge Holanda Alves

Article title : ELECTORAL ACCOUNTABILITY AND CORRUPTION: EVIDENCE FROM THE AUDITS OF LOCAL GOVERNMENTS

Authors of the article : Claudio Ferraz and Frederico Finan

Intervention Location : Brazil

Sample Size : 476 observations

Sector : Economic Policy and Governance

Type of Intervention : Effect of electoral institutional policy on corruption

Variable of Main Interest : Total amount of resources related to corrupted activities

Evaluation method: Experimental Evaluation (RCT)

Policy Problem

When we study economics, we start by understanding that goods are scarce and we need to make decisions that best satisfy our respective desires. When we introduce the public sector, we add the detail that the State must make the decision that best satisfies the population that will benefit from these policies. Democracy enters as the political factor that gives the population the right to define which agent will represent society in deciding these policies.

In reality we know that this does not always happen. In several cases we are faced with situations of abuse of political power, corruption and any other factor that becomes a threat to modern democracies. Underdeveloped countries, in particular, serve as an example because there are several cases in which political elites divert public funds destined for health, education and security to obtain private gains. It is believed that both the portion of corruption practices and the means of correction are associated with electoral systems, since the way in which the electoral system is determined or the decisions adopted by the population can be deciding factors in whether a politician chooses to become corrupt. or not.

For this reason, Ferraz and Finan (2011) seek to examine the effects of electoral accountability on corruption in local governments in Brazil. For their analyses, the authors used reports from the Anti-Corruption Program that randomly audits Brazilian municipalities, carrying out analyzes related to fraud by municipal managers. The objective is to verify the incentives for reelection by comparing mayors who are in the first term of government with those who are in the second (and last) term and signs of these mayors becoming corrupt.

Assessment Context

Since the Federal Constitution of 1988, Brazil has been adopting policies, both aimed at the institutional structure, as well as State fiscal inspection policies. In 1997, the possibility of re-election was introduced and in 2003, an anti-corruption program was created by the General Comptroller of the Union (CGU) with the aim of randomly auditing Brazilian municipalities. The combination of the two policies allows us to compare the levels of corruption between 2001-2004 of mayors who are in their first term with those who are in their second term.

Even though a mayor can only hold office for two consecutive terms, there is the possibility of returning after a one-term hiatus. However, only 12% of politicians who served their second term in 2004 decided to be elected in 2008 after the hiatus, indicating a low probability of returning to political office in the future and showing that the average mayor treats the second term as if he had fulfilled his last term.

Policy Details

Created in May 2003, the anti-corruption program, implemented by the CGU, aims to reduce the misuse of public resources among public administrators in municipalities and encourage society to participate in the control of public spending. In its first year, the program audited 26 random municipalities, each in a state in Brazil.

Through lotteries carried out by Caixa Econômica Federal in Brasília, the program expanded and audited 50 city halls in the second period and then another 60 municipalities, all of them with less than 450,000 inhabitants. To ensure that the audit will work, the press and local population are invited to witness the lottery and certify that all 10 to 15 CGU auditors will examine and record the information in the most reliable way possible.

After a week of inspections, a detailed report describing all irregularities is sent to the CGU, which forwards it to the Federal Audit Court (TCU), the Public Ministry and the municipality's legislative branch. The main audit conclusions are published on the internet and reported in the media. It is these reports that Ferraz and Finan (2011) used to measure corruption.

Methodology Details

From the coding of the reports, Ferraz and Finan (2011) defined the total amount of resources related to corrupted activities as their main variable of interest. They also report two other indicators of corruption: number of corruption-related irregularities and the sharing of corruption-related service items. To measure non-visible violations, they used a mismanagement indicator, which represents the number of violations by the number of services audited.

The main objective is to analyze whether re-election incentives affect political corruption in the municipality. To estimate these results, the ideal would be to randomly assign the possibility of reelection to municipalities, to then measure the difference between the two groups of municipalities (first and second term). Even if the selection of CGU municipalities is random, the experiment would be outdated due to the nature of the data. To solve this problem, the authors use a Regression Discontinuous (RDD) calculation, which allows an approximation of a random experiment, which compares only mayors who won re-elections by a very small percentage with those who lost by a very small percentage.

This model allows us to compare two groups that for some exogenous reason (out of control) are very similar, but had different fates. To adapt the idea with Discontinuous Regression, mayors are defined who, in the competition for their second term, lost or won in the 2000 elections by a very small percentage. Using this finding allows us to consider that the two individuals are similar and that the only difference between them occurs due to small or insignificant electoral reasons.

For municipalities that won narrowly, the treatment would be mayors who are in their second term of government, while those who lost narrowly are replaced by a new mayor, who constitute the control group, as they are in their first term.

Results

The results show that mayors with incentives to be re-elected are less corrupt than those without incentives to be re-elected. Mayors in their first term have, on average, a 27% lower share of diverted resources than mayors in their second term. Considering that municipalities receive, on average, US$2 million in federal transfers, mayors who are in their second term steal US$55 thousand more and the incentive for re-election reduces corruption by US$150 million throughout Brazil, the equivalent to half of what the federal government spent in 2002 on the Bolsa Escola income transfer program.

It is also evidenced that incentives for re-election vary according to differences in local institutional contexts, for example, public and local media. In general, in municipalities without the presence of local media, incentives for re-election reduce political corruption and, on the other hand, mayors who won by greater differences can afford to be more corrupt.

Public Policy Lessons

Corruption is a recurring and important theme in empirical studies. Resources that could have been allocated to schools or hospitals are diverted and used for their own benefits. The abuse of power by elected politicians is a central issue in a large number of countries, and it is necessary to seek measures that reduce corruption and generate better investments for the population.

Corruption is linked to several factors, which range from issues related to democratic institutions to the lack of popular oversight and punishment from the courts. In this work, Ferraz and Finan (2011) highlight how electoral structure and responsibility, related to the possibility of re-election, can affect the discipline of politicians and control their behavior of embezzling public funds.

Their findings are important since first-term politicians are associated with less corruption, indicating that the second term, being the last, makes mayors more likely to commit irregularities.

Reference:

FERRAZ, Claudio; FINAN, Frederico. Electoral accountability and corruption: Evidence from the audits of local governments. American Economic Review, vol. 101, no. 4, p. 1274-1311, 2011.