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This article examines potential impacts of increase in non-tax government revenues and public expenses on corruption for 11 transition economies in the Central and Eastern Europe.

The empirical analysis uses yearly panel datasets and employs second-generation panel data models which take cross-sectional dependency and slope heterogeneity into account.

The empirical results reveal the fact that there is a strong linkage between public expenses and corruption and a weak linkage between non-tax revenue collection and corruption in the transition economies. We perform the same analysis by using data sets from G-7 countries but do not notice any linkages between those variables.

The research topic requires further discussion on constitutional political economy to digest the empirical findings. Thus, an extended version combined with political economic approach might be useful.

Through economic transitions, there might be a linkage between public expenditures and corruption index. Thus, public spending might be controlled by using constitutional economics policies.

This paper is the first empirical work in the literature, which examines if there is a linkage between corruption and public expenditures and government tax income structure by using panel data sets. Moreover, it compares the results from transition countries with those of G-7 countries and provides certain policy suggestions in the context of constitutional economics.