Do government audits reduce corruption? Estimating the impacts of exposing corrupt politicians

Abstract

This paper examines the extent to which government audits of public resources can reduce corruption by enhancing political and judiciary accountability. We do so in the context of Brazil’s anticorruption program, which randomly audits municipalities for their use of federal funds. We find that being audited in the past reduces future corruption by 8 percent, while also increasing the likelihood of experiencing a subsequent legal action by 20 percent. We interpret these reduced-form findings through a political agency model, which we structurally estimate. Our results suggest that the reduction in corruption comes mostly from the audits increasing the perceived nonelectoral costs of engaging in corruption.