The Most Corrupt States in the Country—And How They Budget

by Jeremy Loudenback

Does public-sector corruption help explain state-government spending?

According to a recent study by Cheol Liu and John L. Mikesell in the Public Administration Review, the answer may be yes.

Source: Public Administration Review Volume 74, Issue 3, pages 359–360, May/June 2014
Source: Public Administration Review Volume 74, Issue 3, pages 359–360, May/June 2014

With “The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending,” the pair examined data from the Department of Justice that covered more than 25,000 public corruption-related convictions between 1976 and 2008.  In looking at the misconduct of public officials (i.e., federal and state legislators, governors, judges, and other federal, state, and local public employees) while in public office, the researchers argue that public-sector corruption may be connected to the size of state budgets as well as how those budgets are allocated.

Mississippi, Louisiana, Tennessee, Illinois, Pennsylvania, Alabama, Alaska, South Dakota, Kentucky, and Florida were deemed to be the most corrupt states in the study, and Liu and Mikesell estimated that nine out of the top 10 most corrupt states cost taxpayers $1,308 more per person per year compared with states with average levels of corruption.

The researchers also have much to say about how corruption can distort the budget choices made by officials. The study found that law enforcement and economic development projects were among the most lucrative for graft—corrupt states were more likely to spend money on construction, corrections, highways, and policing programs. By contrast, states with higher-than-average levels of corruption were negatively correlated with spending on education, welfare, and health, perhaps reflecting that these sectors are less vulnerable to corruption and bribery.

The authors note that corruption can have a wide array of negative consequences, from reduced economic productivity to higher levels of income inequality. But corruption is a relatively difficult process to measure. As Rose Gill Hearn notes, even Transparency International faces significant hurdles in measuring corruption:

Corruption generally comprises illegal activities, which are deliberately hidden and only come to light through scandals, investigations or prosecutions. There is no meaningful way to assess absolute levels of corruption in countries or territories on the basis of hard empirical data. Possible attempts to do so, such as by comparing bribes reported, the number of prosecutions brought or studying court cases directly linked to corruption, cannot be taken as definitive indicators of corruption levels.

But whether looking at corruption by measuring the number of convictions, as Liu and Mikesell do, or by assessing perceptions of corruption (the preferred method of Transparency International), the importance of a proactive approach to corruption prevention is important. With budgets challenged by pensions, rising healthcare costs, and debt payments, officials at all levels must be more vigilant than ever to ensure that public resources are being equitably allocated to benefit all residents.