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Theories describing rent seeking in the public sector posit a number of negative fiscal outcomes that the choices of corrupt officials may generate. The evidence presented in this article shows that states with greater intensities of public corruption have higher aggregate levels of state and local debt. If corruption in the 10 most corrupt states were only at an average level, their public debt would be 9 percent lower, or about $249.35 per capita, all else being equal. Notably, institutional control measures may not have succeeded in restraining the expansion of state and local public debt in the presence of greater levels of corruption. State and local governments would achieve more efficient levels of fiscal discipline by curbing public sector corruption.

This article demonstrates the impact of public officials’ corruption on the size and allocation of U.S. state spending. Extending two theories of “excessive” government expansion, the authors argue that public officials’ corruption should cause state spending to be artificially elevated. Corruption increased state spending over the period 1997–2008. During that time, the 10 most corrupt states could have reduced their total annual expenditure by an average of $1,308 per capita—5.2 percent of the mean per capita state expenditure—if corruption had been at the average level of the states. Moreover, at the expense of social sectors, corruption is likely to distort states’ public resource allocations in favor of higher-potential “bribe-generating” spending and items directly beneficial to public officials, such as capital, construction, highways, borrowing, and total salaries and wages. The authors use an objective, concrete, and consistent measurement of corruption, the number of convictions.

Seventy years of central planning by authoritarian government distorted the economies of the countries of the former Soviet Union (FSU) almost beyond belief and left them unprepared for a smooth transition to market economies.(1) Factories placed in economically unviable locations produced items unsalable because of poor style, sloppy workmanship, unreliability, or hopelessly high production costs. People were distributed around the countries, often without consideration for where they might want to live and with minimal attention to where their presence might yield economic value. The contribution that management, finance, and organizing services make to the value of businesses and to society was dismissed. It was no wonder that opening these countries to democratic choice, to economic freedoms, and to international markets brought economic collapse. However, markets will develop on their own--even in Soviet times, people survived by informal exchange and, while unaccustomed to many elements of modern marketing, finance, and business management, they did understand trade, as any visit to a FSU country today will quickly confirm. Given a modicum of economic freedom, even with ambiguous property rights and doubtful enforceability of contracts, markets emerged in response to individual demands for goods and services. Government budget processes and procedures--the systems for making public sector resource allocation decisions --do not freely emerge like markets.(2) The fiscal system consistent with Soviet times was not compatible with markets, free choice, personal and economic freedom, and democratic decision making. The old system must stop and a new system--a framework of laws and human and physical resources appropriate to new tasks--must be created by conscious and concerted actions. Early successes with the development of markets in some FSU countries, notably the Russian Federation, mislead many observers into believing that fiscal reforms were working. Continuing evidence, however, including the great Russian crisis of 1998--a collapse emerging from unsustainable budget deficits and default on federation and regional debt issues--shows how wrong that observation would be.(3) Absence of restructuring and reform in the public sector are easily apparent throughout the FSU. Examples include contentious and confused fiscal relationships between tiers of government in the Russian Federation; budget processes unable to constrain fiscal deficits or to manage allocation of scarce resources among governmental programs; inability to pay wages, pensions, and other public obligations as they come due; unreformed tax systems that seem more designed to punish enterprise than to raise revenue; tax collectors and government agencies that work with barter instead of money; and tax administration that thinks in terms of collection by brute force rather than voluntary compliance.(4) The following sections, based on several years of direct field work including extensive discussions with senior government officials in several FSU countries, explore critical problems in the budget systems and procedures of these countries that have complicated or prevented their contribution to the normal expectations of what these systems must do: (1) maintain aggregate fiscal discipline, (2) assure direction of public resources to areas of greatest national need, and (3) encourage efficient use of resources in public agencies (Campos and Pradhan 1996, 1997; Schiavo-Campo and Tommasi 1999). Even though public budgeting is a planning process in both centrally planned and market economies, the budget environment and the expectations for the budget are considerably different in these systems and the transition in process has been difficult. In spite of the years elapsed since the collapse of the Soviet Union and the independence of these states and considerable progress in developing effective and accountable systems in some countries, most of the budget systems have many changes ahead if they are to assure that government services will be within the actual available government revenues and will be appropriate to the needs of the public. …

W riting in the July/August 2006 issue of PAR, professors Hal G. Rainey and James Thompson applaud Charles Rossotti's work as commissioner of the Internal Revenue Service (IRS) from 1997 to 2002, maintaining that his term of service "substantially improved services to taxpayers and the administration of a beleaguered revenuecollection system" (Rainey and Thompson 2006). The authors commend Rossotti's successful reform of the IRS, an initiative authorized by the U.S. Internal Revenue Service Reform and Restructuring Act of 1998. Rossotti himself made many proposals to the act. The authorization of the reform in the legislation made its implementation easier by making objections to the reform largely pointless. We do not dispute this part of the record, but we believe that Rainey and Thompson do not look closely at the full set of outcomes recorded by the IRS.

Public administration has historically concentrated on the production and delivery of public services. Few such services, however, can be provided without the transfer of resources from private to public use. Except in the case of seizure of private resources (commandeering, condemnation, military draft, etc.), public agencies must purchase their resources at prevailing market prices. For the agency to conduct this purchasing activity, it must have obtained command over money. The processes of obtaining this money are the revenue-raising activities of the public agency, and these activities are, for any government, equally as important as the spending activities. Every dollar spent must have been rasied from some source. These revenue sources include money creation, borrowing, sale of governmental services, intergovernmental aid, and taxation. The Constitution limits money creation to the federal government and aid obviously does not involve net increases in public resources. Each source has particular conditions under which it is most satisfactory for use, but taxation is the source most governments will use to finance most of their activities.1 For this reason, this article will focus on the administration of tax systems to examine the little-examined "other side" of public administration.

As early as 1966, the lottery was characterized as "a fickle form of finance." ' At that time, only New Hampshire had a state lottery. In 1986, the number of lottery states will reach 22 plus the District of Columbia, including almost 60 percent of the nation's population. This increase in the number of lotteries reflects a popularity rare among public revenue sources. For example, 1984 lottery referenda in California, Missouri, Oregon, and West Virginia all passed by substantial margins; in only 10 of the 274 counties involved did the question receive less than half the votes cast. In the present environment, which is clearly pro-lottery, it is reasonable to examine lotteries as means of government finance. Has something changed to make them productive and acceptable sources of revenue, or does the growth of the state lotteries across the United States represent the expansion of a bad idea?