# **1. INTRODUCTION**

The quality of public sector institutions plays a critical role in access to and costs of the public services provided by a government to its citizens. Poor governance can affect greatly public service delivery, both directly through higher price, and indirectly through lower quality or quantity available. When seeking a public service, some users may be discriminated against and pay more than what is officially set (because of corruption)<sup>2</sup> . Consequently, some users may get discouraged and choose not to seek the service needed due to the higher price imposed by the bribery “tax.” In this paper we explore both aspects of the relationship between governance and services delivery using micro-level survey data: the potential regressive impact of “bad governance” and the “discouraged user effect” of such bribery tax. Its main contribution is to provide preliminary evidence on the regressiveness of corruption and to link empirically access to public services and quality of governance.

Three elements can be used to characterize public service delivery and may lead to greater inequality among citizens: the quality of the service, its cost (official and unofficial) and its availability. Empirical research has shown that bad governance and corruption reduce the quality of publicly provided services and investment in the public sector (Gupta, Davoodi, Alonso-Terme, 1998; Davis, 2004). Overall, service delivery is weakened by bad governance, since the latter reduces the ability and incentives of policymakers and users to monitor providers (World Development Report, 2004).

The quality of the service provided is not the only dimension through which bad governance may affect users. Bad governance, by promoting mis-allocation of resources and poor accountability, may raise the cost of services (both official and unofficial) and limit the access of users to public services. Users with lower income or firms of different size may pay less or more in term of bribes than others to obtain the same public service (Hunt and Laszlo, 2005; Svensson, 2003).

Yet, there is limited systematic, empirical work about the impact of bad governance on users and the link between bad governance and service delivery. The purpose of this paper is to begin filling this void by focusing on the relationship between quality of governance, cost for different users and access to public services. In doing so, the paper complements the existing empirical literature on governance and public service provision.

The difficulty of measuring (official and unofficial) costs and access to a particular public service is one of the major culprits of the lack of empirical studies on these issues. Recently, however, data collection efforts have been supported in several developing countries by the World Bank to gather country-specific surveys of thousands of households, enterprises and public officials. These efforts have allowed local government to compile in-

> 2 A recent article from the New York Times offers some evidence of the costs of bad governance, especially for poorer citizens in the Third World.  In particular, petty bribery acts as a hidden regressive tax, according to research completed by the World Bank Institute. In Zambia, for example, poor people paid 17 percent of their incomes in bribes for medical care, while the middle class paid only 3 percent. The comparable figures for Paraguay were 7 percent for the poor and only 1 percent for the middle class. For the complete article, please visit: <u>http://www.iht.com/articles/2005/08/29/news/corrupt.php</u>

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