Are EU funds a corruption risk? The impact of EU funds on grand corruption in Central and Eastern Europe

Fazekas et al explore the impact of EU structural funds on institutionalised grand corruption in three countries where corruption is systemic – Czech Republic, Hungary, and Slovakia – between 2009-2012. They examine whether EU funds have contributed to weakening institutional quality in terms of wasteful public spending and increased ‘legal’ corruption conducted through public procurement. By exploiting a unique pooled database containing contract-level public procurement information for all three countries they are able to systematically examine corruption risks associated with EU funding at the micro-level. The authors also develop a composite corruption risks indicator based on the incidence and logical structure of ‘irregularities’ in individual public procurement transactions.

Fazekas et al. ultimately claim that EU funding impacts institutionalised grand corruption in CEE in two ways: first, by providing additional public resources available for corrupt rent extraction; second, by increasing the controls of corruption for the additionally allocated funding. Their preliminary calculations indicate that the first effect increases the value of particularistic resource allocation in the three countries up to 1.21% of their GDPs, while the second effect decreases the value of particularistic resource allocation by up to 0.03% of GDP. However, the latter beneficial effect is entirely driven by Slovakia, which has a high national corruption risk level; while in Czech Republic and Hungary this impact is even negative. The authors conclude with several policy recommendations calling for a radical improvement of the monitoring and controlling framework.