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Measuring Corruption Using Governmental Audit Reports: Strategies and Pitfalls

Methods
Quantitative
Corruption

Abstract

For about 25 years, scholars have primarily relied on perceptions-based measures of governmental corruption, even though the drawbacks of these measures are ample and well-known. More recently, analyses centered on Brazil have showcased the utility of randomized audits as a more objective alternative to perception-based measures (e.g., Ferraz and Finan 2008, 2011). However, Brazil is the only country in the world with randomized audits. In this paper, I show how scholars can objectively estimate governmental corruption with audits even when they are not randomized. Specifically, I show that it is acceptable to use non-randomized audits to measure corruption when: 1) the distribution of audits is not biased against opposition party politicians; 2) scholars use electoral regression discontinuity designs to double-check for distributional bias following close elections; 3) scholars appropriately take into account the structure of government in each country; and 4) scholars check the reporting requirements and hiring procedures of supreme audit institutions to ensure they are not patronage bodies of the executive. I demonstrate the utility of my approach by analyzing municipal-level audits from India, Mexico, Honduras, and Guatemala, each of which figure (slightly) differently on the above criteria. The new approach proposed in this paper will help researchers undertake more objective analyses of governmental corruption around the world.