Study shows correlation between federal grants to local governments and increased corruption

A study by researchers at the University of Washington and the University of Chicago revealed a correlation between federal grants and the increase in allegations of public corruption in local governments.

The report, moreover, attributes the problem to a lack of oversight. Thus, it also discussed the importance of local media presence in preventing acts of corruption.

The article, titled "Windfall federal grants and local government corruption", highlighted that federal grants to local governments increased from $135 billion to $1.2 trillion between 1990 and 2022.

The report highlighted that the money came from 1,670 federal programs, prompting concern from agencies such as the Office of Management and Budget (OMB) and the Government Accountability Office (GAO).

With that data, the paper's authors looked at local governments that received grants to see if there was anything to support concerns about possible corruption.

The study tracked all identifiable local public officials charged with corruption between 2005 and 2018, reflecting 1,174 local public criminal defendants.

"We begin by examining whether federal grant windfalls are associated with more local corruption, and find significantly positive relations between windfalls and the number of public sector employees charged with corruption in the subsequent two years," the study explained.

In that sense, the study highlighted that the economic magnitude is important because the presence of an extraordinary grant is associated with a 28% increase in the number of public officials accused of corruption. This is a relationship that is further intensified with the closure of local newspapers.

"We use the shock of a local newspaper closure to assess whether local press presence affects the windfall-corruption relationship. A difference-in-differences analysis suggests that the relationship between windfalls and local corruption increases following closure of a daily newspaper in the same county," it highlighted.

Similarly, the analysis indicated that federal grants are indeed subject to oversight. However, it said, they depend on the supervision of state and local governments to prevent abuse of these funds.

The authors of the study are Xiangpei Chen (associate professor of accounting at Loyola University Chicago) as well as Angela K. Gore, Jennifer Spencer and James Wade (all of George Washington University).

The report comes at a time when the second administration - and current administration - of Donald Trump is pushing measures to reduce the size of the state (cutting unnecessary government positions and spending). Similarly, the Department of Government Efficiency seeks to achieve a government with transparency regarding federal funds.