No Carrot Without a Stick! Public Funding, Financial Oversight, and Political Corruption

The literature on the effect of direct public funding (DPF) on corruption is inconclusive. There are at least two reasons for this. First, DPF is usually considered as dichotomous, not a continuous variable. Second, political party financial oversight (PPFO) has not been taken into consideration. In this article, we examine the relationship between DPF, PPFO, and corruption. Drawing on data from the Varieties of Democracy (V-Dem), and using time-series cross-sectional analysis, we demonstrate that PPFO conditions the effect of DPF on political corruption. With effective PPFO, DPF has a negative effect on the level of corruption, meaning that controlling the way political parties spent state subsidies, the lower the level of corruption. Without it, DPF and corruption are not at all related. The article contributes to the literature in two ways. First, it contributes to a more nuanced understanding of the costs and benefits of DPF. Second, it demonstrates the importance of taking into consideration the conditioning effect of PPFO. Rules and regulations shape politics. How they do so depend on whether the rules and regulations are enforced.