Tax Revenue Decentralisation and Corruption in the Context of Civil Liberties: A Cross-Country Study

In studies on the functioning of the public sector there are surveys examining the determinants of corruption, including the level of fiscal decentralisation in the light of economic and social development. However, there is a dearth of survey data presenting the impact of the revenue side of this decentralisation in the context of civil liberties. Thus, the aim of the paper is to examine the influence of tax revenue decentralisation and civil liberties on corruption based on the OECD countries, taking into account the impacts of a country’s size, scope of the public sector and public procurements, macroeconomic uncertainty, and interactions between tax revenue decentralisation and civil liberties on the phenomenon under study. The empirical study concerns 38 OECD countries in the period 2012–2022. Therefore, longitudinal data models were estimated, namely the fixed effects model and panel quantile regression with fixed effects using the method of moments. The survey showed that an increase in tax revenue decentralisation causes a decrease in corruption. In addition, civil liberties and their interaction with aforementioned decentralisation may determine corruption; however, this is heterogeneous throughout the distribution of corruption level. In addition, the scope of the public sector and macroeconomic uncertainty stimulate rent-seeking behaviour, which weakens the institutional foundations to counteract corruption. Thus, policymakers should be aware that the growing scope of the public sector, government fragmentation, and the functioning of bottlenecks in the performance of official duties at sub-national level might lead to a decrease in the efficiency of anti-corruption policy or programmes. Based on the findings, it is crucial to ensure price stability to reduce the analysed dysfunction.