Corruption, Political Accountability, and Decentralization in Developing Countries

Does decentralization reduce corruption in developing countries? What can explain the decentralization success or failure in combating corruption in these economies? Using cross-country information we show that the negative effect of decentralization on corruption found in the literature is absent for developing countries. A Similar result is obtained for political accountability, i.e. decentralization improves it in developed but not in developing economies. We build a simple imperfect information model of corruption and political accountability to study whether these results can be explained for the existence of powerful local elites. We show that the relative increment of the elites ’ power in some jurisdictions, the combination of a low level of income with a large between-jurisdictions income inequality, and the transfers ’ design may explain why decentralization has not been decisive to reduce the level of corruption in developing countries