Abstract
Fighting corruption in one sector may improve overall governance but may also shift rent extraction activities to less scrutinized sectors. This paper highlights such unintended consequences of a federal anti-corruption strategy in Brazil by documenting the causal effects of randomized fiscal audits on deforestation dynamics, a non-targeted outcome. Between 2003 and 2011, public audits of federal funds increased deforestation by about 10% in municipalities of the Brazilian Amazon within the first three years after the audit. Municipalities seem also to have learned from neighboring audits, which affected deforestation outcomes in a similar way to own audits. The audit effects doubled among first term mayors who managed to win re-elections afterwards, suggesting the potential presence of electoral benefits to such strategies.
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