The corruption risks of EU funds in Hungary

Abstract

In corruption, a group of players gain an economic advantage without providing any socially beneficial services in return, therefore corruption is considered to be a form of rent-seeking. Similar to other forms of rent-seeking, corruption causes losses on a societal level, due to the less efficient allocation of resources, as well as the costs of operation and prosecution. Fighting corruption is important not just because of ethical but also economic considerations. Contributions from the European Union are making possible the use of more funds than ever, and spending the full amount of this money is a priority preference of the government. The abundance of funds and the pressure on absorption increase corruption, by the managers of the funds overplanning the amount of money to be allocated to individual tender invitations, setting generous rules on eligible costs, and specifying low rates of own contribution wherever possible. As a result, the opportunities for rent-seeking are increased, as it is worth it for beneficiaries to carry out the project even after relinquishing part of the funds they have been awarded. Thus, the abundance of funds generates a sphere of corruption in which rent-seekers may appear on various levels of the system, often even without the knowledge or approval of those on higher decisionmaking levels.