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Editorial
Released on October 05 , 2018 @ 16:10 EDT

Can salaries and re-election prevent political corruption? An empirical evidence

This paper mainly focuses on decisions taken by politicians that may affect the level of municipal corruption. Specifically, we study whether local politicians’ incentives to be corrupt are influenced by the wages they receive and/or their intention to run for next elections. This issue has hardly been empirically tackled before at local level.

A major problem in every political system is that politicians in office may use their power to pursue their own interests, rather than those of citizens. Politicians are in a position that allows them to divert public funds into their own pockets. In fact, it has been claimed that policymakers seek power, ego-rents and even bribes. Transparency International defines corruption as the abuse of entrusted power for private gain. Corruption generally comprises illegal activities, which mainly come to light only through scandals, investigations or prosecutions. Although previous studies have explored several factors of corruption, most of them have been conducted at national levels. In fact, the European Commission considers that no comprehensive approach of corruption has been developed at regional and local levels.

 

The evaluation of corruption is more complex at the regional and local level. There are three principal approaches to measure corruption at the macro level: (1) general or target-group perception (2) incidence of corruptive activities and (3) bribes reported, the number of prosecutions brought or court cases directly linked to corruption. The first kind of measures reflects the feeling of the public or a specific group of respondents about corruption. The second approach is based on surveys among those who potentially bribe and those whom bribes are offered. The third kind of measures groups more objective variables that are also used as indicators of corruption levels. However, at local level, the difficulty of measuring corruption levels through any of these approaches has become a major obstacle due mainly to the limited availability of surveys and database needed to measure corruption in a proper way. For this reason, as stated above, while numerous have examined the determinants of corruption in an international comparative approach, municipal research on this issue is more scarce.

According to researchers as in all organizational contexts, an agency problem exists between elected officials and voters. Voters, principals, elect a politician, agent. The interests of politicians and voters are not perfectly aligned, so politicians in office may use their power to pursue their own interests, rather than those of the citizens. Researchers model this political agency problem as one of rent extraction. Voters pay taxes to fund public goods that are provided by politicians with uncertain costs. Given that politicians know these costs, they take advantage of this information asymmetry by extracting rents from the tax collected for personal benefit, which reduces the funds available for supplying public goods. Therefore, voters’ utility decreases as the amount of rents extracted increases.

Although all of the ways of obtaining political rents can be seen as unethical, only some of them actually are illegal. According to Transparency International, corruption is defined as the abuse of entrusted power for private gain through illegal activities. This abuse of entrusted power by politicians through corruption is a threat to many modern democracies. However, while the pervasive effects of corruption have been well documented, the root causes are poorly understood.

Some recent empirical studies have explored the determinants of corruption, most of them at national levels. Furthermore, several of these factors have not been analyzed in depth. For example, while there are convincing theoretical arguments why political decisions affect corruption, the empirical evidence is rather scarce. Below, we present the literature on two main decisions taken by municipal politicians that may affect the level of corruption: politicians’ wages and their intention to run for next elections.

Efficiency wage theories posit that higher levels of pay induce higher productivity. This effect can be explained by three different efficiency models. First, sociological models postulate that employees who believe they are overpaid (comparing their wages with those of comparable employees) are more likely to work harder and be more. Second, the shirking model suggests that employees overpaid exert effort and avoid improper behaviour so as to retain their jobs and continue earning above-market rents. While the first two arguments are due to motivation reasons, the third argument is based on the selection model. This model argues that firms have imperfect information about worker abilities, thus they may attract higher quality employees by offering higher wages.

All these models support the idea that a wage increase fosters employees’ productivity. Reseachers complement the efficiency wages theories by examining the impact of relative wages on employee theft. Thus, they predict that relatively higher wages will discourage employee theft for two reasons: first, employees receiving relatively higher wages are less inclined to commit theft as they attempt to reciprocate positively to their employers and/or to retain their high-paying jobs (motivation mechanism); second, firms that offer relatively higher wages may attract a higher proportion of honest workers (selection mechanism). Researchers  also contribute to the management control literature that examines the effects of control mechanisms on employee behavior. Thus, higher wages can provide an alternative mechanism to deter fraudulent behaviour, beyond other honesty inducing control mechanisms studied in the accounting and control literature.

 However, not all politicians respond in the same way to the same incentives. Thus, regardless of the wage level, some politicians might be corrupt because of their own psychological or moral makeup, or because some of the bribes offered may be too large for some politicians to resist. In this sense, the fight against corruption pursued exclusively on the basis of wage increases can be very costly to the budget of a municipality, which may not be welcomed by citizens, and can achieve only part of the objective, since despite high wages, some individuals may continue to engage in corrupt practices

Extending efficiency wage theories to the public sector, state that paying politicians more could also improve their performance (productivity) for different reasons. First, politicians’ morale could increase as their wages rise (sociological models). Second, paying politicians better may increase their performance because of their need to hold office (shirking model) Finally, higher wages will attract more quality citizens into politics (selection model).

Editor
WikiLeaks Sudbury
October 2018

Note: This article originally published on  Spanish Accounting Review 21 (1) (2018) 19–27.  Brief overview and excerpts of the articles and concepts are noted above.  

Reference
Benito at al (2018). Can salaries and re-election prevent political corruption? An empirical evidence, Spanish Accounting Review 21 (1) (2018) 19–27.

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