The Effect of Fiscal Corruption on the Composition of Government Expenditures: A Case Study of Selected Developing Countries

Given the importance of economic effect of governmental expenditure at the national level, several studies has been done to identify the factors affecting the extent and composition of government expenditure.In the present article, the effect of fiscal corruption on government expenditure along with other factors has been studied. For this purpose, a panel which includes the annual data for years 2000- 2007 for 31 selected developing countries has been considered. In the first stage, stationary properties of variables and long-term relation between them is investigated. Then by using the method of panel data regression, the impact of fiscal corruption on the composition of government expenditure has been investigated.Findings of our econometric models show that fiscal corruption has a meaningful effect on composition of government expenditure. In other words, reduction in fiscal corruption index will lead to increase in the relative share of current expenditure, the share of expenditure on human capital and the share of expenditure on education and health in GDP. Also we have found a reduction in the relative share of military expenditure and capital expenditure in GDP.