Politics that Corrupts? On how State Capacity and Political Connections Influence Institutionalised Grand Corruption in Hungary

The control of corruption crucially depends on administrative capacity such as professionalization of the bureaucracy, while political groups may be interested in using bureaucracy to further their private goals. This paper develops a measure of institutionalised grand corruption using transaction level public procurement data for Hungary between 2008-2012. This indicator of corruption results from relating procurement process irregularities (e.g. extremely short deadlines) to restricting market access on procurement tender-level. Organisation-level panel data analysis determines the impact of administrative capacity such as frequency of administrative errors and political connections of winning firms on corruption. Findings indicate that marginal improvements in the prevalence of corruption are primarily driven by administrative capacity; while substantial improvements in the probability of state capture are almost exclusively driven by political connections. Results suggest that administrative fixes to the problem of systemic corruption are bound to be ineffective, unless tight-knit elite networks are simultaneously contested and broken-up.