There is a broad consensus that low government wages in developing countries result in a decline of public sector efficiency and productivity and create both incentives and opportunities for corruption and misuse of public resources. However, most studies also agree that increasing salaries without establishing effective control and monitoring systems as well as enforcement of appropriate sanctions is unlikely to have an impact on corruption. Underpaid staffs develop a wide range of coping strategies to top up incomes, such as teaching, consulting for development agencies, or moonlighting in the private sector. One of the most frequent and effective strategies consists of concentrating on activities that benefit from donor funded per Diems and allowances. In addition to great potential for abuse, such practices have a number of undesirable side effects such as distorting the incentive structure of public servants, encouraging specific forms of corruption and patronage, creating situations favourable to conflicts of interest, competition for time and brain drain. Greater transparency and accountability are needed to address the perverse effects of such practices. Although the debate on these issues is still at an early stage, three major policy directions emerge from the literature, including the need to reform the public sector incentives’ structure, harmonise donors’ systems of allowances and establish more effective control mechanisms.
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