Explaining leakage of public funds

Using panel data from a unique survey of public primary schools in Uganda we assess the degree of leakage of public funds in education. The survey data reveal that on average, during the period 1991–5, 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 by public officials for purposes unrelated to education or captured for private gain (leakage). Moreover we find that resource flows and leakages are endogenous to school characteristics. 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. Resources are therefore not necessarily allocated according to the rules underlying government budget decisions, with potential equity and efficiency implications.