Explaining leakage of public funds

Using panel data from a unique survey of public primary schools in Uganda, Reinikka and Svensson assess the degree of leakage of public funds in education. The survey data reveal that on average, during the period 1991-95, schools received only 13 percent of what the central government contributed to the schools' non wage expenditures. The bulk of the allocated spending was either used for public officials for purposes unrelated to education or captured for private gain (leakage). Moreover, the authors find that resource flows and leakages are endogenous to schools' socio-political endowment. Rather than being passive recipients of flows from government, schools use their bargaining power vis-à-vis other parts of government to secure greater shares of funding. The article concludes the implication of these results for research as well as for policy. It emphasises in particular the need to understand the local political economy in order to estimate the actual budget allocation across end-users (in this case schools).