Corruption in Brazil: An analysis based on audits of municipalities

In this master thesis I will study the determinants of corruption in Brazilian municipalities for the years 2006 to 2014. To perform this analysis I first build a database using data from the CGU audit of municipalities program, different IBGE databases and data from the Brazilian Treasury transparency website. Both the building of the database and the definition of my hypotheses are based on the literature on corruption and on my previous knowledge of Brazil. I used the software Stata (version 14) to build the data and run my regressions. The main model is estimated with a pooled OLS with robust standard errors estimates. My analysis is based in 4 main hypotheses which derive from the tradeoff that the choice to corrupt involve: the potential benefit from extracting rents, and the cost from being caught and facing legal consequences. The hypotheses being: 1) corruption is positively correlated with natural resources related royalty transfers; 2) corruption is negatively correlated with other constitutional municipal transfers; 3) corruption is negatively correlated with human development; and 4) the corruption level in a municipality is correlated with it being audited before. My model controls for the main economic and socio-demographic characteristics of the municipalities and for state and year fixed effects. The main results corroborate the hypotheses. They show robust evidence of a significant positive correlation between average corruption and oil and gas royalties per capita, and a significant negative correlation between average corruption and human development index for 2010. An increase of R$1,000.00 in oil and gas royalty transfers per capita is correlated with an increase of 1.58 corrupt irregularities per inspection. While the results indicate that when a municipality moves from 0.5 to 0.6 in the human development index (HDI), there is an associated reduction of 1.2 corrupt irregularities per inspection. Robustness checks are performed, giving further support to the model specification and estimation strategy choices. I believe this thesis will contribute to the literature by providing a better understanding of the CGU data and by identifying factors that significantly correlate with corruption in Brazil