Corruption: Who pays for the bill?

This paper intends to study who pays for corruption in Brazil from 2005 to 2011. Politicians may decide to charge the spillovers of corruption at a municipal level through taxes or to charge it to the entire country through voluntary transfers. The used measure of corruption is based on audit reports conducted on randomly selected municipalities from 2005 to 2011.In order to address this question an IV strategy was computed using as instrument for the number of observed cases of corruption the dummy variable of being audited or not. We evaluated the impact of corruption on taxes and on voluntary transfers and concluded that with an increase in the number of observed cases of corruption the first decreases and the latest registers an increase. Therefore, considering all Brazilian municipalities, mayors prefer to spread the bill all over the country than charging it locally.

Market value of corruption

This paper studies the impact of the Brazilian anticorruption legislation, PL 6826/2010, on stock returns. I show that, around the law approval date, the greater the link between the corporate and political worlds, the worse is the companies’ performance. Companies awarded with public contracts in 2012 suffer more with the new legislation approval. Firms with above median contract values have 2.9% lower returns than its peers. The negative effect is more pronounced for bigger and more complex entities, associated with higher levels of Corporate Responsibility and Governance and not subject to the US FCPA.