Corruption’s Impact on Welfare Spending: A Panel Data Analysis

Abstract: The existence of corruption poses challenges for governments worldwide attempting to implement certain policies as well as organizing their economy. Not only can widespread corruption threaten the rule of law and legal order but also the trust in and legitimacy of public institutions. The aim of the study was to investigate possible relationships between corruption and public expenditure on healthcare spending, education spending and expenditure on social services. To analyze the effect of corruption on the share of public spending allocated towards these selected welfare policies, a fixed effects panel data regression model was used. Data on corruption from a total of 178 countries was collected through Transparency International’s Corruption Perception Index (CPI), an organization working to combat and measure corruption on an international level. The CPI was standardized in 2012, being the logical starting year of this study. In total, the database contained 11 679 observations (including control variables) for the years 2012-2020. The panel data analyses showed that there was a significant negative relationship between corruption and healthcare spending. Similarly, there was a nearly significant negative relationship between corruption and education spending. Thus, the results obtained supports the hypothesis that corruption decrease certain shares of welfare spending as part of public expenditure.