Furthermore, decentralization can reduce corruption by creating horizontal competition between local governments. Tiebout make the case in a paper  that residents' and factors of production's mobility across localities can reduce the monopoly power exercised by local public officials with respect to regulations and bribes.
Fiscal and political decentralization encourages inter-jurisdictional competition that pressures sub-national governments to efficiently deliver local public goods. If citizens are dissatisfied with their local government's performance, they can move to other regions, thereby decreasing tax revenues in less efficient jurisdictions.
A similar argument concerning the relationship between a decentralized bureaucratic structure and bribe payments has been explored in the academic literature. Rose-Ackerman suggests that a decentralized civil service can reduce bribery since competition between public officials would bid down bribe payments. If government services are substitutes, then the competitive regime still applies. However, when government services are complementary and in the case of a decentralized bureaucratic structure, firms or citizens are facing several independent bureaucrats.
Decentralization might therefore lead to a lack of coordination among bribe-seeking bureaucrats and a " Tragedy of the Commons " outcome where public officials ask bribe payments that are too high, thereby increasing the burden that corruption imposes on firms and citizens. Diaby and Sylwester empirically test these hypotheses in a cross-country regression and find that bribe payments are higher under a more decentralized bureaucratic structure.
Public Sector Reform in Developing Countries
The same measure of fiscal decentralization used by Fisman and Gatti appears not to be significantly correlated with corruption measures. Decentralization is a complex process which manifests itself in various forms. The design and impetus for decentralization are specific to each country, which complicates comparisons of a single conception of decentralization.
The literature on decentralization experiences in several developing countries suggests the effects of decentralization on public sector performance and corruption are likely to be ambiguous and highly context-specific. What's more, measuring corruption as bribery without paying attention to special interest capture may provide an inaccurate assessment of the impact of decentralization.
Decentralized Development Planning and Policy Reform in Developing Countries
As Bardhan and Mookherjee argue, bribery may decrease while being replaced by local elite capture as a result of decentralization. Treisman purports that the theoretical and empirical arguments about decentralization and governance refer to specific types of decentralization. He identifies five types: structural, decision, resource, electoral and institutional decentralization and develops arguments clarifying how each type affects the quality of government.
Rather than structuring rewards and penalties for corrupt behaviour, another approach to civil service reform seeks to increase the probability that corrupt activity will be observed. Theoretically, monitoring can reduce information asymmetries so that the principal can induce the agent to choose the optimal level of effort and the optimal degree of corrupt activity. As the agent compares his expected payoff of being honest to that of being corrupt, increasing the probability of getting caught and punished will deter corrupt behaviour. Civil service auditing by the principal or third parties serves an accountability function.
The inherent conflict of interest as well as the lack of oversight require independent third parties to certify the reliability of financial reporting, performance results and compliance to rules. Performance auditing can also help detect corruption in public entities. Audits highlight irregularities and areas of inefficiencies that may indicate the existence of corruption. Based on suspicious circumstances, auditors can identify illegal behaviour and collect evidence on misdeeds which can subsequently be used to prosecute public servants at fault.
As previously mentioned, successful detection efforts by performance auditing can have a deterrent effect on corrupt activities. Auditing and prosecution were important elements in Justice Plana's campaign to curb corruption in the Bureau of Internal Revenue in the Philippines. Appointed as the new Commissioner of the corrupt Bureau of Internal Revenue, Justice Plana's anti-corruption strategy focused on implementing a new performance evaluation system, gathering information on corruption through intelligence agents and audits and effectively prosecuting corrupt tax officers.
According to Professor Magtolis-Briones, the threat of being detected and prosecuted decidedly lead officials to reconsider their decisions to engage in corrupt activities. In Georgia, the success of anti-corruption reforms especially relied on top-down monitoring and prosecution but Schueth warns about the potential abuses of monitoring when fighting corruption. Laboratory experiments provide evidence on the impact monitoring.
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The researchers had two treatments, low monitoring and high monitoring. While the 'low monitoring' treatment proved effective in curbing bribery, they could not detect significant treatment effects on bribery in the 'high monitoring' treatment.
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The authors suggest that high monitoring intensity can crowd out intrinsic motivations to behave honestly. Serra compare the effectiveness of top-down and bottom-up monitoring in a laboratory bribery game between public officials and private citizens. However, the researcher found that combining formal top-down auditing and bottom-up monitoring created an accountability mechanism that was effective in curbing corruption. An alternative approach to improving governance and combating corruption that has gained prominence in recent years is encouraging grassroots participation by community members in local monitoring to induce bottom-up pressures for reform.
Community participation is now considered an important component of reforms aiming to improve public service delivery and corruption at the local level. Bottom-up models of governance involve community members participating in the service provision process by allowing them to monitor public officials, to have a say in policymaking, and keep service providers accountable to incentivize them to deliver public goods and services efficiently. Stiglitz argues that community members, as beneficiaries of public goods and services, will have more incentives to monitor and ensure that governments programs are successful compared to indifferent central bureaucrats.
In particular, project involving local citizens will be more likely to succeed since community participation helps sustain efforts towards the long-term continuation of projects necessary to keep them effective.
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Nevertheless, B. Olken contends that grassroots monitoring for public goods and services may be impaired by a free-rider problem  and suggests that government provision of private goods subsidized food or health care may generate more incentives to monitor service provision as each community member has a personal interest in securing the effective delivery of goods and in minimizing extortion by public officials.
Stiglitz indeed recognizes that grassroots monitoring of public good delivery is in itself a public good and that as such, it is under-provided. This project aimed at gathering local citizens' feedback on civil service performance and publicizing the results through the media, thereby exerting public pressures for the public service to improve its performance and launch reforms. While this initiative did raise awareness on such issues, there was some but not dramatic improvement in service delivery quality between and However, the difficulty of measuring improvements in service quality other than through subjective measures restricts opportunities to rigorously evaluate this bottom-up initiative.
Participatory Budgeting in Porto Alegre , Brazil is known among scholars and policymakers as an enduring example of bottom-up reforms. This project was initiated in , and is said to have improved access to and the quality of public service provision, especially for lower segments of society.
Their wages unilaterally doubled in an attempt to increase their living standards to reduce bribery fair-wage hypothesis. Foltz and Opoku-Agyemang assess the impact of this salary reform using a difference-in-difference analysis taking advantage of the exogenous change induced by the policy. While police officers' wages doubled, the salaries of other civil servants in Ghana and police officers in Burkina Faso stayed the same. Using data on bribes paid from 2, truck trips between Ghana and Burkina Faso, Foltz and Opoku-Agyemang can observe the differences in interactions with truck drivers between the treated and the control group before the salary reform and after the salary reform If we assume group differences would have stayed constant in the absence of the reform parallel trend assumption , the difference-in-difference coefficient estimate measures the causal impact of the salary increase on Ghanaian police officers' propensity to ask for bribes.
The results suggest that the salary reform counterintuively increased police officers' efforts to extort bribes, the value of the bribes and the total amount truck drivers had to pay on the road.
Foltz and Opoku-Agyemang posit that these results could be due to the lack of enforcement of anti-corruption laws. Without changing the environment and other incentives facing civil servants, it appears that increasing wages may not have the predicted effects on corruption. Corruption in tax administration has particularly detrimental effects on tax revenue collection, fiscal balance and overall economic performance. The three treatment groups differed in the degree to which tax officers' pay was based on revenue collection performance and on other subjective evaluations from taxpayers and the tax department.
The 'Revenue' treatment provided incentives depending only on revenue collection exceeding a benchmark while the 'Revenue Plus' scheme tied salaries to tax collection performance as well as accuracy of tax assessment and taxpayers' satisfaction. The last treatment 'Flexible Plus' added several criteria set by the tax department to determine wages. The 'Revenue' scheme was the most effective in increasing tax collection but the researchers found no effects on accuracy of tax assessment or the satisfaction of taxpayers. They note that pay-for-performance schemes may have tradeoffs: giving excessive incentives to tax officers might increase their bargaining power with taxpayers and lead to more extortion and taxpayers' dissatisfaction.
However, Khan, Khwaja and Olken point out that the benefits of pay-for-performance contracts outweigh their costs and suggest they can effective in increasing tax revenue collection. By ignoring the potential for co-operation with these new players and the growing prominence of south-south relations, the EU may be pursuing a counterproductive course, from not only trade and development but also political and geostrategic perspectives, said Bilal.
More broadly, in his essay in the report, Christopher Stevens, senior researcher at ODI, sees the changes in EU trade policy as an important shift from multilateral trade rules that protect all players, including the weakest states, to a set of arrangements between the EU and developing countries in which it is able to set the agenda.
In particular, according to Stevens, what the new GSP does is redefine what a developing country is within the World Trade Organisation. Trade campaigners have argued that the EU's new trade policy is designed to put pressure on developing countries to sign EPAs with the union. Such payments and export subsidies aimed at boosting the production and income of EU farmers tend to reduce world prices and the attractiveness of the European market for developing countries.
Nicole Cantore, another author in the report, said the EU should consider abolishing subsidies and using the funds for agricultural development programmes in the EU and developing countries, to meet the union's stated objective of promoting food security. Topics Trade and development.