Corruption and distribution of public spending in developing countries

This paper empirically examines the impact of corruption on the structure of government spending by sector. Using the three-stage least squares method on 64 countries between 1996 and 2001, we show that public corruption distorts the structure of public spending by reducing the portion of social expenditure (education, health and social protection) and increasing the part dedicated to public services and order, fuel and energy, culture, and defense. However, civil and political rights seem to be a stronger determinant of expense on defense than corruption. Our results are robust to instrumentation by the latitude of the country.