Abstract:
That corruption affects the composition of government spending, and in particular that it affects education and health spending adversely, seems to be empirically well established. However, there are indications that these findings might be biased due to the omission of decentralization as an explanatory variable. This thesis empirically investigates the relationship between corruption and government spending, and by controlling for decentralization it tries to account for the potential omitted variable bias. The results support the findings that corruption adversely affects government spending on health and education. Nevertheless, there are indications that there might be an interaction effect between corruption and decentralization.