This article studies how public investment and other types of spending by municipal governments shape perceptions of corruption in Mexico. We argue, drawing on various strands of literature, that investment in visible public works projects should lower corruption perceptions, given the well-known difficulties in directly observing corrupt acts. Contrary to our expectations and common assumptions in studies of public investment, we find that more public investment by municipal governments is associated, on average, with higher corruption perceptions. However, this effect is mediated by individuals’ education levels. For individuals with less formal education, higher public investment correlates with higher perceived corruption, while highly educated individuals perceive less corruption when municipal public investment is high. The study uses qualitative evidence from municipal audit reports to identify a possible mechanism driving this outcome: municipal investments may not be targeted to the poorer neighborhoods with greater public service deficits.

Do perceived obstacles about corruption matter for Indian firms when it comes to their probability to innovate? Using World Bank Enterprise Survey firm-level data, we show that a unit rise in corruption perception of firms in India lowers innovation rate by about 1 percent. The result is important in terms of policy implementation because recent studies have shown that perceived obstacles can affect firms’ probability to innovate. Such analysis is missing in the Indian context where both big and petty corruption is rampant. Our results further show that perceptions about financial barriers matter only when firms also view corruption to be bad. Perceived difficulty in accessing credit in conjunction with corruption perception lowers probability of innovation by 4 percent. This is also true for nonfinancial perceived obstacles of firms. The results remain robust to alternate identification strategies.