Further Thoughts on Government Size and Corruption: Why Do Patterns Across U.S. States Look So Different from Patterns Across Countries?

In a couple of posts (here and here) last fall, I discussed the relationship between government size (usually measured by the ratio of government expenditures to GDP, or occasionally by public sector employment rates) and corruption. The main takeaway from the cross-country data is that, in apparent contradiction to the “big government causes corruption” hypothesis, government size is, if anything, negatively correlated with perceived corruption, as measured by the Corruption Perceptions Index (CPI) or similar sources. While that evidence does not decisively refute the claim that larger governments are more prone to corruption—the relevant studies have important limitations, and it’s at least possible that the result is due to reverse causation—it certainly seems to suggest that, when it comes to fighting corruption, too-small governments are probably a more significant problem than too-large governments.

Most of the research on the relationship between government size and corruption relies on international comparisons. But some work has performed single-country studies, attempting to identify the relationship between government size and corruption across sub-national jurisdiction. Some of this work reaches results that are largely consistent with the international research. For example, a recent analysis of 290 Swedish municipalities found that those municipalities with higher public expenditure levels had lower corruption, as reported in an anonymous survey of senior politicians and civil servants. But other research—particularly research on the United States—has found the opposite result: Within the U.S., when controlling for a number of other economic and demographic factors, states with larger public sectors seem to have higher corruption. What’s going on here? Continue reading