Do Acts of Corruption Committed by Officials in Charge of Municipal Financial Management Reduce Local Public Revenue? A Case Study From Cameroon

Abstract

This article analyses the effect of acts of corruption committed by officials in charge of the financial management of municipalities on the mobilization of local public revenue in Cameroon. From a sample of 213 communes out of the 360 in Cameroon, we specify and estimate a panel data model using the Generalized Least Squares (GLS) method over the period 2010–2020. Our results show that corruption measured by convictions of officials in charge of the financial management of municipalities by the financial jurisdiction of accounts in Cameroon reduces local public revenue. Our results identify tax compliance captured through access to education, health and average per capita income as the main transmission channels. The study calls for the intensification of controls on the financial management of municipalities and the strengthening of sanctions imposed on public officials who have been convicted of financial embezzlement.

Keywords:

• Decentralization
• corruption
• local government revenue
• tax compliance
• Cameroon

JEL CODE:

• C33
• D73
• H71
• H77

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 In this article, we define corruption according to Transparency International (2020), as “an abuse of power for private purposes.”

2 In the context of this article, the mobilization of local public revenues refers to the fact for local authorities to increase the amount of their own revenues per year.

3 Indicators are generally direct measures of corruption. They use as indicators: number of officials accused of corruption (Dincer & Gunalp, 2005; Glaeser & Saks, 2006), amounts of bribes in corrupt transactions between officials and companies (Di Tella & Schargrodsky, 2003; Svensson, 2003; Wei & Shleifer, 2000) or the gap between the cost of infrastructure and the effective price paid by the government (Golden & Picci, 2005).

4 Through this database, corruption is assessed in a fairly broad way by a panel of international experts. To this end, it includes not only acts of corruption in the political but also administrative environment (nepotism, patronage, favouritism, requests for special payments and bribes, etc.).

5 In this article, we look at the transmission channels through which corruption acts on local public revenues.

6 The public authorities have set up several mechanisms to combat petty and grand corruption. This is particularly the case with the creation of the National Anti-Corruption Commission (CONAC) in 2006, the implementation of the sparrowhawk operation and the creation of the National Agency for Financial Investigation (ANIF).

7 The positive effect that corruption has on economic growth is summarized in the “grease the wheels” hypothesis. This hypothesis suggests that, corruption promotes economic growth by compensating for a bad and rigid governance. Here, corruption is chosen as a second-best solution to economic problems that may arise due to the over regulation of a weak institutional environment. Corruption can equally help reduce the bureaucracy imposed on companies, such as through bypassing complicated regulations, reducing long waiting times, and accelerating the distribution of licenses as Leff (1964) highlights.

8 Tax evasion is the concealment of the true value of legal economic transactions for the purpose of avoiding taxation (D'Amato et al., 2003; Hindriks et al., 1999; Virmani, 1989).

9 The results of our study are not influenced by the impact of the Great Recession which had negative effects on the global economy during the period from 2008 to 2018 because like most countries in sub-Saharan Africa, Cameroon’s low rate of financial integration has relatively protected its economy from the direct effects of the financial crisis. Cameroon thus found itself sheltered from the impact of the subprime crisis of 2007 and the banking crisis of the summer of 2008, which allowed it to avoid the harmful effects of a crisis financial crisis that shook international financial markets.

10 Cameroon has 10 regions, 58 departments and 360 communes.

11 As part of the payment of salaries, allowances, bonuses to municipal staff as well as the payment of invoices from suppliers of goods and services (public order), the municipality is required to withhold certain taxes and duties and pay them back to the services tax.