Keywords: institutions, corruption, rents, local governments
JEL codes: D02, D72, D78, H41, H83
Abstract
We estimate the effect of state judiciary presence on rent extraction in Brazilian local governments.
We measure rents as irregularities related to waste or corruption uncovered by central
government auditors. Our unique dataset at the level of individual inspections allows us to separately
examine the spread and depth of rent extraction in local administrations. The identification
strategy is based on an institutional rule of state judiciary branches according to which prosecutors
and judges tend to be assigned to the most populous among contiguous counties forming a judiciary
district. Our research design exploits this rule by comparing counties that are largest in their
district to counties with identical population size from other districts in the same state, where they
are not the most populous. IV estimates suggest that state judiciary presence reduces the share of
inspections with irregularities related to waste or corruption by about 10 percent or 0.3 standard
deviations.
